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<SEC-DOCUMENT>0000950137-05-009321.txt : 20050928
<SEC-HEADER>0000950137-05-009321.hdr.sgml : 20050928
<ACCEPTANCE-DATETIME>20050729215710
ACCESSION NUMBER:		0000950137-05-009321
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		54
CONFORMED PERIOD OF REPORT:	20050430
FILED AS OF DATE:		20050729
DATE AS OF CHANGE:		20050928

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			H&R BLOCK INC
		CENTRAL INDEX KEY:			0000012659
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PERSONAL SERVICES [7200]
		IRS NUMBER:				440607856
		STATE OF INCORPORATION:			MO
		FISCAL YEAR END:			0430

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-06089
		FILM NUMBER:		05986471

	BUSINESS ADDRESS:	
		STREET 1:		4400 MAIN ST
		CITY:			KANSAS CITY
		STATE:			MO
		ZIP:			64111
		BUSINESS PHONE:		8167536900

	MAIL ADDRESS:	
		STREET 1:		4410 MAIN STREET
		CITY:			KANSAS CITY
		STATE:			MO
		ZIP:			64111
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c91685e10vk.htm
<DESCRIPTION>FORM 10-K
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vk</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<HR size="4" noshade color="#000000" style="margin-top: -5px">
</DIV>

<DIV align="left" style="font-size: 10pt;">
<HR size="1" noshade color="#000000" style="margin-top: -10px">
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNITED STATES</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>FORM&nbsp;10-K</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    (Mark One)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="wingdings">&#254;
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    ANNUAL REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF&nbsp;1934</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>For the fiscal year ended: April&nbsp;30, 2005</B></TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    OR</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT face="wingdings">&#111;
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    TRANSITION REPORT PURSUANT TO SECTION&nbsp;13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <B>For the transition period
    from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commission File Number: 1-6089</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168576.gif" alt="(H&#38;R BLOCK)">
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Exact name of registrant as specified in its charter)
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>MISSOURI</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>44-0607856</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    (State or other jurisdiction of<BR>
    incorporation or organization)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    (I.R.S. Employer Identification Number)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 9pt;">
<B>4400 Main Street, Kansas City, Missouri 64111</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Address of principal executive offices, including zip code)
</DIV>

<DIV align="center" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>(816)&nbsp;753-6900</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
(Registrant&#146;s telephone number, including area code)
</DIV>

<DIV align="center" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Securities registered pursuant to Section&nbsp;12(b) of the
Act:</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Name of Each Exchange on Which Registered</B></TD>
</TR>


<TR>
    <TD align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock, without par value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    New York Stock Exchange</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Pacific Exchange</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Securities registered pursuant to Section&nbsp;12(g) of the
Act:</B>
</DIV>

<DIV align="center" style="font-size: 9pt;">
Common Stock, without par value
</DIV>

<DIV align="center" style="font-size: 9pt;">
(Title of Class)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Indicate by check mark whether the registrant (1)&nbsp;has filed
all reports required to be filed by Section&nbsp;13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12&nbsp;months (or for such shorter period that the registrant
was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past
90&nbsp;days. &nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Indicate by check mark if disclosure of delinquent filers
pursuant to Item&nbsp;405 of Regulation&nbsp;S-K is not
contained herein, and will not be contained, to the best of
registrant&#146;s knowledge, in definitive proxy or information
statements incorporated by reference in Part&nbsp;III of this
Form&nbsp;10-K or any amendment to this
Form&nbsp;10-K.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule&nbsp;12b-2 of the Exchange
Act).&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;<FONT face="wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The aggregate market value of the registrant&#146;s Common Stock
(all voting stock) held by non-affiliates of the registrant,
computed by reference to the price at which the stock was sold
on October&nbsp;31, 2004, was $7,683,275,768.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Number of shares of registrant&#146;s Common Stock, without par
value, outstanding on June&nbsp;30, 2005: 165,970,297.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Documents incorporated by reference</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The definitive proxy statement relating to the registrant&#146;s
Annual Meeting of Shareholders, to be held September&nbsp;7,
2005, is incorporated by reference in Part&nbsp;III to the
extent described therein.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV align="left" style="font-size: 10pt;">
<HR size="1" noshade color="#000000" style="margin-top: -2px">
</DIV>

<DIV align="left" style="font-size: 10pt;">
<HR size="4" noshade color="#000000" style="margin-top: -10px">
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
<!-- TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<FONT color="#AADD6D">H&#38;R BLOCK
</FONT>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>2005 FORM 10-K AND ANNUAL REPORT</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#101'>Introduction and Forward Looking
    Statements</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="12" align="center" valign="top">
    <B>&nbsp;<A HREF='#102'><FONT color="#AADD6D">PART&nbsp;I</A></FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#103'>Item&nbsp;1.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#103'>Business</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#104'>General Development of Business</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#105'>Description of the Business</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#106'>Tax Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#107'>Mortgage Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#108'>Business Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    &nbsp;<A HREF='#109'>Investment Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#110'>Service Marks, Trademarks and Patents</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#111'>Employees</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#112'>Risk Factors</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#113'>Reports</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#114'>Item&nbsp;2.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#114'>Properties</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#115'>Item&nbsp;3.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#115'>Legal Proceedings</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#116'>Item&nbsp;4.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#116'>Submission of Matters to a Vote of Security
    Holders</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="12" align="center" valign="top">
    <B>&nbsp;<A HREF='#117'><FONT color="#AADD6D">PART&nbsp;II</A></FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#118'>Item&nbsp;5.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#118'>Market for the Registrant&#146;s Common
    Equity, Related Stockholder Matters and Issuer Purchases of
    Equity Securities</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#119'>Item&nbsp;6.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#119'>Selected Financial Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#120'>Item&nbsp;7.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#120'>Management&#146;s Discussion and Analysis
    of Financial Condition and Results of Operations</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#121'>Item&nbsp;7a.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#121'>Quantitative and Qualitative Disclosures
    About Market Risk</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#122'>Item&nbsp;8.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#122'>Financial Statements and Supplementary
    Data</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#123'>Item&nbsp;9.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#123'>Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#124'>Item&nbsp;9a.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#124'>Controls and Procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#125'>Item&nbsp;9b.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#125'>Other Information</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="12" align="center" valign="top">
    <B>&nbsp;<A HREF='#126'><FONT color="#AADD6D">PART&nbsp;III</A></FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#127'>Item&nbsp;10.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#127'>Directors and Executive Officers of the
    Registrant</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#128'>Item&nbsp;11.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#128'>Executive Compensation</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#129'>Item&nbsp;12.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#129'>Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#130'>Item&nbsp;13.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#130'>Certain Relationships and Related
    Transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#131'>Item&nbsp;14.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#131'>Principal Accounting Fees and Services</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="12" align="center" valign="top">
    <B>&nbsp;<A HREF='#132'><FONT color="#AADD6D">PART&nbsp;IV</A></FONT></B></TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">&nbsp;<A HREF='#133'>Item&nbsp;15.</A></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#133'>Exhibits and Financial Statement
    Schedules</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#134'>Signatures</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="bottom">
    &nbsp;<A HREF='#135'>Exhibit&nbsp;Index</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w2.txt">Form of 2003 Long-Term Executive Compensation Plan Award Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w9.txt">Form of 1989 Stock Option Plan for Outside Directors Stock Option Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w33.txt">Leasing Operations Supplier Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w40.txt">Second Amended and Restated Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w46.txt">Amended and Restated Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w47.txt">Amended and Restated Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w48.txt">Second Amended and Restated Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w49.txt">Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w50.txt">Amendment No. 4 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w51.txt">Amendment No. 5 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w52.txt">Amendment No. 6 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w53.txt">Amended and Restated Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w54.txt">Amendment No. 1 to Amended and Restated Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w55.txt">Second Amended and Restated Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w56.txt">Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w57.txt">Amendment No. 5 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w58.txt">Amendment No. 6 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w59.txt">Amendment No. 6 to the Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w60.txt">Amended and Restated Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w61.txt">Amendment No. 1 to Amended and Restated Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w62.txt">Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w63.txt">Amendment No. 1 to Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w64.txt">Amendment No. 2 to Sale and Servicing Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w65.txt">Indenture</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w66.txt">Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w67.txt">Amendment No. 1 to Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w68.txt">Amendment No. 2 to Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w69.txt">Amendment No. 3 to Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w70.txt">Amendment No. 4 to Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv10w71.txt">Amendment No. 5 to Note Purchase Agreement</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv12.txt">Computation of Ratio of Earnings to Fixed Charges</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv21.txt">Subsidiaries of H&R Block, Inc.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv23w1.htm">Consent of KPMG LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv23w2.txt">Consent of PricewaterCoopers LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv31w1.txt">Certification Pursuant to Section 302 - CEO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv31w2.txt">Certification Pursuant to Section 302 - Exec. VP & CFO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv32w1.txt">Certification Pursuant to Section 1350- CEO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c91685exv32w2.txt">Certification Pursuant to Section 1350 - Exec. VP & CFO</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "INTRODUCTION AND FORWARD LOOKING STATEMENTS" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INTRODUCTION AND FORWARD LOOKING STATEMENTS </B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have again chosen to combine our Annual Report on
Form&nbsp;10-K, which we are required to file annually with the
Securities and Exchange Commission (&#147;SEC&#148;), and our
Annual Report to Shareholders. We hope that by including all of
this information in one document, you will find this Annual
Report more useful and informative.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On June&nbsp;7, 2005, we determined it was appropriate to
restate our previously issued consolidated financial statements,
including financial statements for the nine months ended
January&nbsp;31, 2005 and financial statements for the fiscal
years ended April&nbsp;30, 2004 and 2003 and all related interim
periods. The details of the restatement, including the issues
and amounts, are presented in Item&nbsp;8, note&nbsp;2 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Specified portions of our proxy statement, which will be filed
in August 2005, are listed as &#147;incorporated by
reference&#148; in response to certain items. Our proxy
statement will be printed within our Annual Report and mailed to
shareholders in August 2005 and will also be available on our
website at <I>www.hrblock.com.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In this report, and from time to time throughout the year, we
share our expectations for the Company&#146;s future
performance. These forward-looking statements are based upon
current information, expectations, estimates and projections
regarding the Company, the industries and markets in which we
operate, and our assumptions and beliefs at that time. These
statements speak only as of the date on which they are made, are
not guarantees of future performance, and involve certain risks,
uncertainties and assumptions, which are difficult to predict.
Therefore, actual outcomes and results could materially differ
from what is expressed, implied or forecast in these
forward-looking statements. Words such as &#147;believe,&#148;
&#147;will,&#148; &#147;plan,&#148; &#147;expect,&#148;
&#147;intend,&#148; &#147;estimate,&#148;
&#147;approximate,&#148; and similar expressions may identify
such forward-looking statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "PART I" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">PART&nbsp;I</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "ITEM 1. BUSINESS" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>ITEM&nbsp;1. BUSINESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='104'></A>
</DIV>

<!-- link1 "GENERAL DEVELOPMENT OF BUSINESS ..." -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>GENERAL DEVELOPMENT OF BUSINESS ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
H&#38;R Block is a diversified company with subsidiaries
delivering tax, investment, mortgage and business services and
products. For 50&nbsp;years, we have been developing
relationships with millions of tax clients and our strategy is
to expand on these relationships. Our Tax Services segment
provides income tax return preparation and other services and
products related to tax return preparation to the general public
in the United States, and in Canada, Australia and the United
Kingdom. We also offer investment services and securities
products through H&#38;R Block Financial Advisors, Inc.
(&#147;HRBFA&#148;). Our Mortgage Services segment offers a full
range of home mortgage services through Option One Mortgage
Corporation (&#147;Option One&#148;) and H&#38;R Block Mortgage
Corporation (&#147;HRBMC&#148;). RSM McGladrey Business
Services, Inc. (&#147;RSM&#148;) is a national accounting, tax
and consulting firm primarily serving mid-sized businesses.
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B><FONT color="#AADD6D">H&#38;R BLOCK&#146;S MISSION
....</FONT></B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
&#147;To help our clients achieve their financial objectives
</DIV>

<DIV align="center" style="font-size: 10pt;">
by serving as their tax and financial partner.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Key to achieving our mission is the enhancement of client
experiences through consistent delivery of valuable services and
advice. Operating through multiple lines of business allows us
to better meet the changing financial needs of our clients.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
H&#38;R Block, Inc. was organized as a corporation in 1955 under
the laws of the State of Missouri, and is a holding company with
operating subsidiaries providing financial services and products
to the general public. &#147;H&#38;R Block,&#148; &#147;the
Company,&#148; &#147;we,&#148; &#147;our&#148; and
&#147;us&#148; are used interchangeably to refer to H&#38;R
Block, Inc. or to H&#38;R Block, Inc. and its subsidiaries, as
appropriate to the context.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECENT
DEVELOPMENTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;On
October&nbsp;26, 2004, we issued $400.0&nbsp;million of
5.125%&nbsp;Senior Notes under our shelf registration
statements. The Senior Notes are due on October&nbsp;30, 2014.
The proceeds from the notes were used to repay our
$250.0&nbsp;million in
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes, which were due on November&nbsp;1, 2004. The remaining
proceeds were used for working capital, capital expenditures,
repayment of other debt and other general corporate purposes. As
of April&nbsp;30, 2005, we had $850.0&nbsp;million available
under our shelf registration statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On June&nbsp;8, 2005, our Board of Directors declared a
two-for-one stock split of the Company&#146;s Common Stock in
the form of a 100% stock distribution, effective August&nbsp;22,
2005, to shareholders of record as of the close of business on
August&nbsp;1, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Developments during fiscal year 2005 within our operating
segments are described below in &#147;Description of
Business.&#148;
</DIV>

<DIV align="left" style="font-size: 6pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 1</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
See discussion below and in Item&nbsp;8, note&nbsp;20 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

<!-- link1 "DESCRIPTION OF BUSINESS" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DESCRIPTION OF BUSINESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='106'></A>
</DIV>

<!-- link1 "TAX SERVICES" -->

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TAX SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">GENERAL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
Tax Services segment is primarily engaged in providing tax
return preparation and related services and products in the
United States and its territories, Canada, Australia and the
United Kingdom. Revenues include fees earned for services
performed at company-owned retail tax offices, royalties from
franchise retail tax offices, sales of Peace of Mind
(&#147;POM&#148;) guarantees, sales of tax preparation and other
software, fees from online tax preparation, and participation in
refund anticipation loans (&#147;RALs&#148;). Segment revenues
constituted 53.4% of our consolidated revenues for fiscal year
2005, 51.6% for 2004, and 52.2% for 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Retail income tax return preparation and related services are
provided by tax professionals via a system of retail offices
operated directly by us or by franchisees. In addition to our
retail offices, we offer a number of digital tax preparation
alternatives.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
TaxCut&#174; from H&#38;R Block enables do-it-yourself users to
prepare their federal and state tax returns easily and
accurately. Our software products may be purchased through
third-party retail stores, direct mail or online.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Clients also have many online options: multiple versions of
do-it-yourself tax preparation, professional tax review, tax
advice and tax preparation through a tax professional, whereby
the client completes a tax organizer and sends it to a tax
professional for preparation and/or signature.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
By offering professional and do-it-yourself tax preparation
options through multiple channels, we can serve our clients in
the manner in which they choose to be served.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also offer clients a number of options for receiving their
income tax refund, including a check directly from the Internal
Revenue Service (&#147;IRS&#148;), an electronic deposit
directly to their bank account, a refund anticipation check or a
RAL.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following are some of the services we offer with our tax
preparation service:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PEACE OF MIND
GUARANTEE</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
POM guarantee is offered to U.S.&nbsp;clients, whereby we
(1)&nbsp;represent our clients if audited by the IRS, and
(2)&nbsp;assume the cost, subject to certain limits, of
additional taxes owed by a client resulting from errors
attributable to one of our tax professionals. The POM program
has a per client cumulative limit of $5,000 in additional taxes
assessed with respect to the federal, state and local tax
returns we prepared for the taxable year covered by the program.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RALs</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;RALs
are offered to our U.S.&nbsp;clients by a designated bank
through a contractual relationship with HSBC Holdings plc
(&#147;HSBC&#148;). An eligible, electronic filing client may
apply for a RAL at one of our offices. After meeting certain
eligibility criteria, clients are offered the opportunity to
apply for a loan from HSBC in amounts up to $9,999 based upon
their anticipated federal income tax refund. We simultaneously
transmit the income tax return information to the IRS and the
lending bank. Within a few days or less after the filing date,
the client receives a check or direct deposit in the amount of
the loan, less the bank&#146;s transaction fee, our tax return
preparation fee and other fees for client-selected services.
Additionally, qualifying electronic filing clients are eligible
to receive their RAL proceeds, less applicable fees, in
approximately one hour after electronic filing using the Instant
Money service. For a RAL to be repaid, the IRS directly deposits
the participating client&#146;s federal income tax refund into a
designated account at the lending bank. See related discussion
of RAL participations below.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RACs</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Refund
Anticipation Checks (&#147;RACs&#148;) are offered to
U.S.&nbsp;clients who may not wish to obtain a RAL or do not
qualify for the RAL program, but who would like to either
(1)&nbsp;receive their refund faster and do not have a bank
account for the IRS to direct deposit their refund or
(2)&nbsp;have their tax preparation fees paid directly out of
their refund. A RAC is not a loan and is provided through a
contractual relationship with HSBC.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">EASY PAY
LOANS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;&#147;EasyPay&#148;
revolving loans are offered through a contractual relationship
with HSBC to clients whose tax returns reflect a balance due to
the IRS. The loan has &#147;same as cash&#148; terms for
approximately 90&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">EXPRESS
IRAs</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Individual
retirement accounts (&#147;Express IRAs&#148;), invested in
FDIC-insured money market accounts, are offered to
U.S.&nbsp;clients as a tax-advantaged retirement savings tool.
HRBFA acts as custodian on the accounts, with the funds being
invested at insured depository institutions paying competitive
money market interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">TAX RETURN PREPARATION
COURSES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
offer income tax return preparation courses to the public, which
teach taxpayers how to prepare income tax returns and provide us
with a source of trained tax professionals.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SOFTWARE
PRODUCTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
develop and market TaxCut income tax preparation software,
H&#38;R Block
DeductionPro<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
</DIV>

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    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 2</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
Kiplinger&#146;s Home and Business Attorney and Kiplinger&#146;s
WILLPower<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">SM</FONT></SUP>
software products.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
TaxCut offers a simple step-by-step tax preparation interview,
data imports from money management software and tax preparation
software, calculations, completion of the appropriate tax forms,
checking for errors and, for an additional charge, electronic
filing.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
H&#38;R Block DeductionPro helps taxpayers track and accurately
value their charitable deductions by providing fair-market
valuations for hundreds of commonly donated household goods.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">ONLINE TAX
PREPARATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
offer a comprehensive range of tax services and products, from
tax advice to complete professional and do-it-yourself tax
return preparation and electronic filing, through our website at
<I>www.hrblock.com </I>and <I>www.taxcut.com.</I> These websites
allow clients to prepare their federal and state income tax
returns using the Online Tax Program (&#147;OTP&#148;), access
tax tips, advice and tax-related news and use calculators for
tax&nbsp;planning.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Beginning with the fiscal year 2003 tax season, we participated
in the Free File Alliance (&#147;FFA&#148;). This alliance was
created by the tax return preparation industry and the IRS, and
allows filers to prepare and file their federal return online at
no charge. We feel that this program increases our visibility
with new clients, while also providing an opportunity to offer
our state return preparation services to these new clients at
our regular prices.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CASHBACK
PROGRAM</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
offer a refund discount (&#147;CashBack&#148;) program to our
customers in Canada. Canadian law specifies the procedures we
must follow in conducting the program. In accordance with
current Canadian regulations, if a customer&#146;s tax return
indicates the customer is entitled to a tax refund, we issue a
check to the client. The client assigns to us the full amount of
the tax refund to be issued by Revenue Canada and the refund
check is then sent by Revenue Canada directly to us. In
accordance with the law, the discount is deemed to include both
the tax return preparation fee and the fee for tax refund
discounting. This program is financed by short-term borrowings.
The number of returns discounted under the CashBack program in
fiscal year 2005 was approximately 581,000, compared to 552,000
in 2004 and 531,000 in 2003. See discussion of the Canadian tax
season extension under &#147;Seasonality of Business.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CLIENTS
SERVED</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We,
together with our franchisees, served approximately
21.4&nbsp;million clients worldwide during fiscal year 2005,
compared to 21.6&nbsp;million in 2004 and 21.7 in 2003. See
discussion of the Canadian tax season extension under
&#147;Seasonality of Business.&#148; We served 19.1&nbsp;million
clients in the U.S.&nbsp;during fiscal year 2005, compared to
19.3&nbsp;million in 2004 and 19.5&nbsp;million in 2003.
&#147;Clients served&#148; includes taxpayers for whom we
prepared income tax returns in offices, federal software units
sold, online completed and paid federal returns and paid online
state returns when no federal return was purchased, as well as
taxpayers for whom we provided only paid electronic filing
services. Returns for our U.S.&nbsp;clients constituted 15.5% of
an IRS estimate of total individual income tax returns filed as
of April&nbsp;29, 2005, compared to 15.7% in 2004 and 16.0%
in&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">OWNED AND FRANCHISED
OFFICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;A
summary of our company-owned and franchise offices is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">U.S.&nbsp;OFFICES &nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Company-owned offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,811</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,688</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Company-owned shared
    locations&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,296</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>607</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total company-owned offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7,107</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,295</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,528</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,967</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise shared
    locations&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>526</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total franchise offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,054</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,062</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>11,161</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,357</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">INTERNATIONAL
    OFFICES &nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Canada</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>912</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>910</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Australia</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>378</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>362</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,300</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,278</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 5pt; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Shared locations include offices located within Wal-Mart, Sears
    or other third-party businesses.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Offices in shared locations include 947 offices operated in
Wal-Mart stores and 757 offices in Sears stores operated as
&#147;H&#38;R Block at Sears.&#148; The Wal-Mart agreement is in
the process of being extended, with the new agreement expected
to expire in May 2007, and the Sears license agreement expires
in July 2007, both subject to termination rights.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We offer franchises as a way to expand our presence in the
market. Our franchise arrangements provide us with certain
rights which are designed to protect our brand. Most of our
franchisees receive signs, designated equipment, specialized
forms, local advertising, initial training, and supervisory
services, and pay us a percentage of gross tax return
preparation and related service revenues as a franchise royalty.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
From time to time, we have acquired the territories of existing
franchisees and other tax return preparation businesses, and
will continue to do so if future conditions warrant and
satisfactory terms can be negotiated. During fiscal year 2004,
we made payments of $243.2&nbsp;million related to the
acquisition of primarily assets and stock in the franchise
territories of ten of our former major franchisees. One
franchisee is continuing litigation
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 3</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
challenging the post-expiration restrictive covenants and also
disputing the payment due under the franchise agreement terms.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RAL PARTICIPATIONS AND 2003 TAX SEASON
WAIVER</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Since
July 1996, we have been a party to agreements with HSBC and its
predecessors to participate in RALs provided by a lending bank
to H&#38;R Block tax clients. The 1996 agreement was amended and
restated in January&nbsp;2003 and again in June&nbsp;2003. In
the June&nbsp;2003 agreement, we obtained the right to purchase
a 49.9% participation interest in RALs obtained through
company-owned and regular franchise offices and a 25% interest
in RALs obtained through major franchise offices. The current
agreement continues through June 2006. Our purchases of the
participation interests are financed through short-term
borrowings, and we bear all of the credit risk associated with
our interests in the RALs. Revenue from our participation is
calculated as the rate of participation multiplied by the fee
paid by the borrower to the lending bank. Our RAL participation
revenue was $182.8&nbsp;million and $168.4&nbsp;million in
fiscal years 2005 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In January 2003, we entered into an agreement with Household Tax
Masters, Inc. (&#147;Household,&#148; subsequently acquired by
HSBC), whereby we waived our right to purchase any participation
interests in and to receive fees related to RALs during the
period January 1 through April&nbsp;30, 2003. In consideration
for waiving these rights, we received a series of payments from
Household, subject to certain adjustments based on delinquency
rates for the 2003 tax season. We recorded revenues totaling
$138.2&nbsp;million during fiscal year 2003. The initial
payments were recognized as revenue over the waiver period. The
waiver agreement only covered the 2003 tax season.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SEASONALITY OF
BUSINESS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Because
most of our clients file their tax returns during the period
from January through April of each year, substantially all of
our revenues from income tax return preparation and related
services and products are received during this period. As a
result, our tax segment generally operates at a loss through the
first eight months of the fiscal year. Historically, these
losses primarily reflect wages of year-round personnel, training
of tax professionals, rental and furnishing of retail tax
offices, and other costs and expenses relating to preparation
for the upcoming tax season. Additionally, the tax business is
affected by economic conditions and unemployment rates. Peak
revenues occur during the applicable tax season, as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    United States and Canada</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    January&nbsp;&#150; April</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">
    Australia</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    July&nbsp;&#150; October</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
This year Revenue Canada extended the Canadian tax season to
May&nbsp;2, 2005. Clients served in our Canadian operations in
fiscal year 2005 includes approximately 47,500 returns in both
company-owned and franchise offices which were accepted by the
client on May&nbsp;1 and&nbsp;2, 2005. The revenues related to
these returns will be recognized in fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMPETITIVE
CONDITIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
retail tax services business is highly competitive. There are a
substantial number of tax return preparation firms and
accounting firms offering tax return preparation services. Many
tax return preparation firms and many firms not otherwise in the
tax return preparation business are involved in providing
electronic filing and RAL services to the public. Commercial tax
return preparers and electronic filers are highly competitive
with regard to price, service and reputation for quality. In
terms of the number of offices and personal tax returns prepared
and electronically filed in offices, online and via our
software, we are the largest company providing direct tax return
preparation and electronic filing services in the U.S.&nbsp;We
also believe we operate the largest tax return preparation
businesses in Canada and Australia.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Digital Tax Solutions businesses compete with a number of
companies. Intuit, Inc. is the dominant supplier of tax
preparation software and is also our primary competitor in the
online tax preparation market. There are many smaller
competitors in the online market, as well as free
state-sponsored online filing programs. Price competition for
tax preparation services increased in fiscal year 2005. In
addition, we and Intuit, along with several other online
companies participating in the FFA, began offering free online
federal return preparation with no income limitations. As a
result, the IRS indicated the number of free federal returns
filed through the FFA increased 46%. We continue to believe the
FFA offers us the opportunity to reach new clients; however,
this year&#146;s free offer captured new clients who may have
otherwise paid for a return through our online business.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GOVERNMENT
REGULATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Primary
efforts toward the regulation of U.S.&nbsp;commercial tax return
preparers have historically been made at the federal level.
Federal legislation requires income tax return preparers to,
among other things, set forth their signatures and
identification numbers on all tax returns prepared by them, and
retain all tax returns prepared for three years. Federal laws
also subject income tax return preparers to accuracy-related
penalties in connection with the preparation of income tax
returns. Preparers may be prohibited from further acting as
income tax return preparers if they continuously and repeatedly
engage in specified misconduct. With certain exceptions, the
Internal Revenue Code also prohibits the use or disclosure by
income tax return preparers of certain income tax return
information without the prior written consent of the taxpayer.
In addition, the Gramm-Leach-Bliley Act and
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 4</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
Federal Trade Commission regulations adopted thereunder require
income tax preparers to adopt and disclose consumer privacy
policies, and provide consumers a reasonable opportunity to
&#147;opt-out&#148; of having personal information disclosed to
unaffiliated third parties for marketing purposes. Some states
have adopted or proposed strict &#147;opt-in&#148; requirements
in connection with use or disclosure of consumer information.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the federal legislation regulating commercial tax
return preparers and consumer privacy has not had and will not
have a material adverse effect on the operations of H&#38;R
Block. In addition, no present state statutes of this nature
have had a material adverse effect on our business. We cannot,
however, predict what the effect may be of the enactment of new
statutes or adoption of new regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The federal government regulates the electronic filing of income
tax returns in part by requiring individuals and businesses to
be accepted into the electronic filing program. Once accepted,
electronic filers must comply with all publications and notices
of the IRS applicable to electronic filing, provide certain
information to the taxpayer, comply with advertising standards
for electronic filers, and be subjected to possible monitoring
by the IRS, penalties for disclosure or use of income tax return
preparation and other preparer penalties, and suspension from
the electronic filing program. States that have adopted
electronic filing programs for state income tax returns have
also enacted laws regulating electronic filers and the
advertising and offering of electronic filing services.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Federal statutes and regulations also regulate an electronic
filer&#146;s involvement in RALs. Electronic filers must clearly
explain the RAL is a loan and not a substitute for or a quicker
way of receiving an income tax refund. Federal laws place
restrictions on the fees an electronic filer may charge in
connection with RALs. In addition, some states and localities
have enacted laws and adopted regulations for RAL facilitators
and/or the advertising of RALs. There are also many states that
have statutes regulating, through licensing and other
requirements, the activities of brokering loans, providing
credit services and offering &#147;credit repair&#148; services
to consumers for a fee (&#147;Loan&nbsp;Activity
Statutes&#148;). We believe the procedures under which we
facilitate RALs are structured so our activities are not
included within the scope of the activities regulated by these
Loan&nbsp;Activity Statutes. There can be no assurances,
however, that states with these Loan&nbsp;Activity Statutes will
not contend successfully that these statutes apply to the RAL
business and that we will need to become licensed under the
Loan&nbsp;Activity Statutes, otherwise comply with statutory
requirements, or modify procedures so that the
Loan&nbsp;Activity Statutes are inapplicable.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Many states have statutes requiring the licensing of persons
offering contracts of insurance. We have received from certain
state insurance regulators inquiries about our POM guarantee
program and the applicability of the state insurance statutes.
In states where the inquiries are closed, the regulators
affirmed our position that the POM guarantee is not a contract
of insurance and is therefore not subject to state insurance
licensing laws. In the few states where inquiries are pending,
we believe there are no insurance laws under which the POM
guarantee constitutes a contract of insurance. There can be no
assurances, however, that the product, or other similar products
we may offer in the future, will not be scrutinized as potential
insurance products and held to be subject to various insurance
laws and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Many of our income tax courses are regulated and licensed in
select states. Failure to obtain a tax school license could
limit our ability to develop interest in tax preparation as a
career or obtain qualified tax professionals.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the federal, state and local laws and legislation
regulating electronic filing, RALs and the facilitation of RALs,
loan brokers, credit services, credit repair services, insurance
products, and proprietary schools have not, and will not in the
future, have a material adverse effect on our operations. We
cannot predict, however, what the effect may be of the enactment
of new statutes or the adoption of new regulations pertaining to
these matters.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As noted above under &#147;Owned and Franchised Offices,&#148;
many of the income tax return preparation offices operating in
the U.S.&nbsp;under the name &#147;H&#38;R Block&#148; are
operated by franchisees. Certain aspects of the
franchisor/franchisee relationship have been the subject of
regulation by the Federal Trade Commission and by various
states. The extent of regulation varies, but relates primarily
to disclosures to be made in connection with the grant of
franchises and limitations on termination by the franchisor
under the franchise agreement. To date, no such regulation has
materially affected our business. We cannot predict, however,
the effect of applicable statutes or regulations that may be
enacted or adopted in the future.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also seek to determine the applicability of all government
and self-regulatory organization statutes, ordinances, rules and
regulations in the international countries in which we operate
(collectively, &#147;Foreign Laws&#148;) and to comply with
these Foreign Laws. We cannot predict what effect the enactment
of future Foreign Laws, changes in interpretations of existing
Foreign Laws, or the results of future regulator inquiries
regarding the applicability of Foreign Laws may have on our
segments, any particular subsidiary, or our consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Statutes and regulations relating to income tax return
preparers, electronic filing, franchising and other areas
affecting
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 5</FONT></B></TD>
</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
the income tax business also exist in other countries in which
we operate. In addition, the Canadian government regulates the
refund-discounting program in Canada. These laws have not
materially affected our international operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See discussion in &#147;Risk Factors&#148; for additional
information.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "MORTGAGE SERVICES" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MORTGAGE SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">GENERAL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
Mortgage Services segment originates mortgage loans, services
non-prime mortgage loans and sells and securitizes mortgage
loans and residual interests in the U.S.&nbsp;Revenues primarily
consist of gains from sales and securitizations of mortgage
assets, accretion on residual interests and servicing fee
income. Segment revenues constituted 28.2% of our consolidated
revenues for fiscal year 2005 and 31.2% for 2004 and 30.8% for
2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We originate both non-prime and prime mortgage loans. Non-prime
mortgages are those that may not be offered through
government-sponsored loan agencies and typically involve
borrowers with limited income documentation, high levels of
consumer debt or past credit problems. Even though these
borrowers have credit problems, they also tend to have equity in
the property that will be used to secure the loan. Prime
mortgages are those that may be offered through government
sponsored loan agencies. We conduct business through four
channels:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Option One&#146;s wholesale origination channel works with
    independent brokers throughout the U.S.&nbsp;to fund non-prime
    mortgage loans through a national branch network. Wholesale
    originations represent the majority of Option One&#146;s total
    loan production.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    HRBMC originates residential mortgage loans directly to retail
    consumers through various sales channels, including 37 loan
    production offices, of which four are regional offices, in
    26&nbsp;states in fiscal year 2005.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Option One&#146;s national accounts channel forms partnerships
    with financial institutions, including national and regional
    banks, to allow them to offer non-prime loans.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Option One&#146;s bulk acquisitions channel specializes in the
    purchase of performing non-prime mortgage loan pools.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Option One is headquartered in Irvine, California and operates
in 48&nbsp;states by serving 42,000 mortgage broker locations
and through its network of 36 wholesale loan production branches
and six national accounts branches. HRBMC, a wholly-owned
subsidiary of Option One, is a retail mortgage lender for prime,
non-prime and government loans and is licensed to conduct
business in all 50&nbsp;states. HRBMC is an approved
seller/servicer for Fannie Mae and Freddie Mac and is HUD
authorized to originate and underwrite FHA and VA mortgage loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LOAN
ORIGINATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
following table details our originations by channel for fiscal
years 2005, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="12" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wholesale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>21,841,783</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,828,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,434,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retail</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,023,914</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,105,021</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,918,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    National accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,974,224</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,642,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,814,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bulk acquisitions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,161,803</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>679,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>411,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>31,001,724</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,256,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,577,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Information regarding our non-prime loan originations is as
follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="13" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan type:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2-year ARM</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>61.6%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70.3%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    3-year ARM</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4.0%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed 1st</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>17.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed 2nd</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest only 1st</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12.6%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;&nbsp;%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.3%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;&nbsp;%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan purpose:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash-out refinance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>63.5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>67.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>30.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26.0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rate or term refinance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan characteristics:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average loan size</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>160</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted-average loan-to-value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>78.9%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted-average FICO score</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
<B>WHOLESALE.</B> Wholesale loan originations involve an
independent broker who assists the borrower in completing the
loan application, which includes securing information regarding
their assets, liabilities, income, credit history, employment
history and personal information. We require a credit report on
each applicant from an industry-recognized credit reporting
company. In evaluating an applicant&#146;s credit history, we
use credit bureau risk scores, generally known as a FICO score,
which is a statistical ranking of likely future credit
performance developed by Fair, Isaac&nbsp;&#38; Company and
provided by the three national credit data repositories.
Qualified independent appraisers are required to appraise
mortgaged properties used to secure mortgage loans. The broker
then identifies a lender who offers a loan product best suited
to the borrower&#146;s financial
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 6</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
needs. No one broker currently originates more than 0.6% of our
total non-prime production.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Upon receipt of an application from a broker, a credit report
and an appraisal report, one of our branch offices processes and
underwrites the loan. Our underwriting guidelines require
mortgage loans be underwritten in a standardized procedure that
complies with federal and state laws and regulations. The
guidelines are primarily intended to assess the value of the
mortgaged property, evaluate the adequacy of the property as
collateral for the mortgage loan, and assess the
creditworthiness of the related borrower. Based upon this
assessment, we advise the broker whether the loan application
meets our underwriting guidelines and product description by
issuing a loan approval or denial. In some cases, we issue a
&#147;conditional approval,&#148; which requires the submission
of additional information or clarification. The mortgage loans
are underwritten with a view toward resale in the secondary
market.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B>RETAIL.</B> HRBMC originates our retail mortgage loans. In
fiscal year 2005, 75% of our retail originations were non-prime
and 25% were prime, compared to 59% and 41%, respectively, in
2004. These loans are processed by loan officers in HRBMC
offices. Approximately one-third of these offices are co-located
with our retail tax offices. The co-located offices are key to
working towards our mission of becoming our clients&#146; tax
and financial partner. During fiscal year 2005, approximately
35% of HRBMC&#146;s loans were made to existing H&#38;R Block
clients compared to 49% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The application and approval process in our retail locations is
similar to those described above under &#147;Wholesale.&#148;
Retail mortgage loans are originated with the intent to sell.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SALE AND SECURITIZATION OF
LOANS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Substantially
all non-prime mortgage loans are sold daily to qualifying
special purpose entities (&#147;Trusts&#148;). See discussion of
our loan sale and securitization process in Item&nbsp;7, under
&#147;Off-Balance Sheet Financing Arrangements.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Substantially all of our retail prime mortgage loans are sold to
Countrywide Home Loans, Inc. (&#147;Countrywide&#148;). The
majority of mortgage loans sold to Countrywide are underwritten
through an automated system under which Countrywide assumes our
representations and warranties, which comply with
Countrywide&#146;s underwriting guidelines. This agreement
allows us to achieve improved execution due to price,
efficiencies in delivery, and elimination of redundancies in
operations. We do not retain servicing rights related to the
prime mortgage loans. HRBMC non-prime mortgage loans are sold to
Option One. See discussion of our prime warehouse line in
Item&nbsp;7, under &#147;Capital Resources and Liquidity by
Segment.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SERVICING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Loan
servicing involves collecting and remitting mortgage loan
payments, making required advances, accounting for principal and
interest, holding escrow for payment of taxes and insurance and
contacting delinquent borrowers. We receive loan-servicing fees
monthly over the life of the mortgage loans. We only service
non-prime mortgage loans. At the end of fiscal year 2005, we
serviced 435,290 loans totaling $68.0&nbsp;billion, compared to
324,364 loans totaling $45.3&nbsp;billion at April&nbsp;30, 2004
and 246,463 loans totaling $31.3&nbsp;billion at April&nbsp;30,
2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following table summarizes our servicing portfolio by origin
and includes related mortgage servicing rights
(&#147;MSRs&#148;) as of April&nbsp;30, 2005 and the rate we
earned on each type of servicing during fiscal year 2005:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="12" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>Type of Servicing</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Principal Balance</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>MSR Balance</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Rate Earned</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Originated</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>47,376,295</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.41%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sub-servicing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,450,482</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.22%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>167,687</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.51%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>67,994,464</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.36%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
When non-prime loans are sold or securitized, we generally
retain the right to service the loans, which results in MSR
assets and liabilities being recorded on our balance sheet.
Assumptions used in estimating the value of MSRs are discussed
in Item&nbsp;8, note&nbsp;1 to our consolidated financial
statements. In addition to servicing loans we originate, we also
service non-prime loans originated by other lenders, designated
in the above table as sub-servicing. MSRs are recorded only in
conjunction with our originated or purchased loan-servicing
portfolio.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GEOGRAPHIC
DISTRIBUTION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
following table details the percent of non-prime loan
origination volume and our loan origination branches by state,
excluding our Retail channel, for fiscal years 2005 and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Percent of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Number of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Percent of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Number of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>State</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Volume</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Branches</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Volume</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Branches</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    California</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18.8%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    New York</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>11.5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Massachusetts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8.4%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Florida</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7.2%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    New Jersey</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5.3%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>45.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>23</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMPETITIVE
CONDITIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Both
the non-prime and prime sectors of the residential mortgage loan
market are highly competitive. The principal methods of
competition are price, service and product differentiation.
There are a substantial number of companies competing in the
residential loan market, including mortgage banking companies,
commercial banks,
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 7</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
savings associations, credit unions and other financial
institutions. There are also numerous companies competing in the
business of servicing non-prime loans. No one firm is a dominant
supplier of non-prime and prime mortgage loans or a dominant
servicer of non-prime loans. <I>Inside B&#38;C Lending</I>
ranked Option One as the number seven originator, based on
market share as of December&nbsp;31, 2004, and the number four
servicer, based on servicing volume as of December&nbsp;31,
2004, of non-prime loans in the industry.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SEASONALITY OF
BUSINESS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Residential
mortgage volume is not subject to significant seasonal
fluctuations. The mortgage business is cyclical, however, and
directly affected by national economic conditions, trends in
business and finance and is impacted by changes in interest
rates.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GOVERNMENT
REGULATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Mortgage
loans purchased, originated and/or serviced are subject to
federal laws and regulations, including:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The federal Truth-in-Lending Act, as amended, and
    Regulation&nbsp;Z promulgated thereunder;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Equal Credit Opportunity Act, as amended, and
    Regulation&nbsp;B promulgated thereunder;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Fair Credit Reporting Act, as amended;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The federal Real Estate Settlement Procedures Act, as amended,
    and Regulation&nbsp;X promulgated thereunder;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Home Ownership Equity Protection Act (&#147;HOEPA&#148;);</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Soldiers&#146; and Sailors&#146; Civil Relief Act of 1940,
    as amended;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Home Mortgage Disclosure Act (&#147;HMDA&#148;) and
    Regulation&nbsp;C promulgated thereunder;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The federal Fair Housing Act;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    The Gramm-Leach-Bliley Act and regulations adopted
    thereunder;&nbsp;and</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Certain other laws and regulations.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Under environmental legislation and case law applicable in
certain states, it is possible that liability for environmental
hazards in respect of real property may be imposed on a holder
of a deed to the property, which may impair the underlying
collateral.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Applicable state laws generally regulate interest rates and
other charges pertaining to non-prime loans. These states also
require certain disclosures and require originators of certain
mortgage loans to be licensed unless an exemption is available.
In addition, most states have other laws, public policies and
general principles of equity relating to consumer protection,
unfair and deceptive practices, and practices that may apply to
the origination, servicing and collection of mortgage loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In recent years, there has been a noticeable increase in state,
county and municipal statutes, ordinances and regulations that
prohibit or regulate so-called &#147;predatory lending&#148;
practices. Predatory lending statutes such as HOEPA, regulate
&#147;high-cost loans,&#148; which are defined separately by
each state, county or municipal statute, regulation or
ordinance, but generally include mortgage loans with interest
rates exceeding a (1)&nbsp;specified margin over the Treasury
Index for a comparable maturity, or (2)&nbsp;designated
percentage of points and fees. Statutes, ordinances and
regulations that regulate high-cost loans generally prohibit
mortgage lenders from engaging in certain defined practices, or
require mortgage lenders to implement certain practices, in
connection with any mortgage loans that fit within the
definition of a high-cost loan. We do not originate loans which
meet the definition of high-cost loans under any law.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Certain state laws restrict or prohibit prepayment penalties on
mortgage loans, and we relied on the federal Alternative
Mortgage Transactions Parity Act (&#147;Parity Act&#148;) and
related rules issued in the past by the Office of Thrift
Supervision (&#147;OTS&#148;) to preempt state limitations on
prepayment penalties. In September 2003, the OTS released a new
rule that reduced the scope of the Parity Act preemption
effective July&nbsp;1, 2004 and, as a result, we can no longer
rely on the Parity Act to preempt state restrictions on
prepayment penalties. The elimination of this federal preemption
requires compliance with state restrictions on prepayment
penalties. These restrictions prohibit us from charging any
prepayment penalty in six states and restrict the amount or
duration of prepayment penalties that we may impose in an
additional eleven states. This places us at a competitive
disadvantage relative to financial institutions that continue to
enjoy federal preemption of such state restrictions. Such
institutions can charge prepayment penalties without regard to
state restrictions and, as a result, may be able to offer loans
with interest rate and loan fee structures that are more
attractive than the interest rate and loan fee structures that
we are able to offer.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See discussion in &#147;Risk Factors&#148; for additional
information.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='108'></A>
</DIV>

<!-- link1 "BUSINESS SERVICES" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BUSINESS SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">GENERAL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
Business Services segment offers middle-market companies
accounting, tax and consulting services. We have continued to
expand the services we offer our clients by adding wealth
management, retirement resources, payroll services, corporate
finance and financial process outsourcing. Segment revenues
constituted 13.0% of our consolidated revenues for fiscal year
2005, 11.8% for 2004 and 11.6% for 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
This segment consists primarily of RSM McGladrey, Inc., which
provides tax, accounting, and business consulting services in
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 8</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
more than 90 offices in 23&nbsp;states and offers services in 18
of the top 25 U.S.&nbsp;markets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Services are also provided by the following wholly-owned
subsidiaries:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    RSM McGladrey Retirement Resources administers retirement plans,
    helps clients design the best plan for their needs, and provides
    retirement plan investment advice, year-end compliance, tax
    reporting and consulting.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    RSM EquiCo, Inc. is an investment banking firm specializing in
    business valuations, acquisitions and divestitures for private
    middle-market businesses.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    RSM McGladrey Employer Services, Inc. (formerly known as
    &#147;MyBenefitSource, Inc.&#148;) is a provider of payroll and
    benefits administration services to middle-market businesses.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    RSM McGladrey Financial Process Outsourcing, Inc. is a provider
    of accounting, reporting, payroll and bill paying services to
    distributors/franchisors and their population of
    retailers/franchisees.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    PDI Global, Inc. provides marketing, communications and
    visibility programs, tax and financial planning guides, and
    marketing and management consulting services to accountants,
    consultants, lawyers, banks, insurers, and other financial
    service providers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RELATIONSHIP WITH MCGLADREY&nbsp;&#38;
PULLEN,
LLP</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;By
regulation, we cannot provide audit and attest services.
McGladrey&nbsp;&#38; Pullen, LLP (&#147;M&#38;P&#148;), a public
accounting firm, provides audit and review services and other
services in which M&#38;P issues written reports on client
financial statements. Through an administrative services
agreement with M&#38;P, we provide accounting, payroll, human
resources and other administrative services to M&#38;P and
receive a management fee for these services. We also have a
cost-sharing arrangement with M&#38;P, whereby they reimburse us
for the costs of certain items, mainly supplies and for the use
of RSM owned property and equipment. M&#38;P is a limited
liability partnership with its own governing body and,
accordingly, is a separate legal entity and is not an affiliate.
Some partners and employees of M&#38;P are also our employees.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SEASONALITY OF
BUSINESS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Revenues
for this segment are largely seasonal in nature, with peak
revenues occurring during January through April.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMPETITIVE
CONDITIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
accounting, tax and consulting business is highly competitive.
The principal methods of competition are price, service and
reputation for quality. There are a substantial number of
accounting firms offering similar services at the international,
national, regional and local levels. As our focus is on
middle-market businesses, our principal competition is with
national and regional accounting firms. We believe we have a
competitive advantage in the geographic areas in which we are
currently located based on the breadth of services we can offer
to these clients above and beyond what a traditional accounting
firm can offer.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GOVERNMENT
REGULATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Many
of the same federal and state regulations relating to tax
preparers and the information concerning tax reform discussed
above in the &#147;Government Regulation&#148; section of
&#147;Tax Services&#148; apply to the Business Services segment
as well. However, accountants are not subject to the same
prohibition on the use or disclosure of certain income tax
return information as tax professionals. Accounting firms are
also subject to state and federal regulations governing
accountants, auditors and financial planners. Various
legislative and regulatory proposals have been made relating to
auditor independence and accounting oversight, among others.
Some of these proposals, if adopted, could have an impact on
RSM&#146;s operations. We believe current state and federal
regulations and known legislative and regulatory proposals do
not and will not have a material adverse effect on our
operations, but we cannot predict what the effect of future
legislation, regulations and proposals may be.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Independence rules established by the SEC and the Public Company
Accounting Oversight Board (&#147;PCAOB&#148;) apply to M&#38;P
as a public accounting firm. In applying its auditor
independence rules, the SEC views us and M&#38;P as a single
entity and requires that we abide by its independence rules for
M&#38;P to be deemed independent of any SEC audit client. The
SEC regards any financial interest or business relationship we
have with a client of M&#38;P as a financial interest or
business relationship between M&#38;P and the client for
purposes of applying its auditor independence rules.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We and M&#38;P have jointly developed and implemented policies,
procedures and controls designed to safeguard M&#38;P&#146;s
independence and integrity as an audit firm in compliance with
applicable regulations and professional responsibilities. These
policies, procedures and controls are designed to monitor and
prevent violations of applicable independence rules and include,
among others, (1)&nbsp;informing our officers, directors and
other members of management concerning auditor independence
matters, (2)&nbsp;procedures for monitoring securities
ownership, (3)&nbsp;communicating with SEC audit clients
regarding the SEC&#146;s interpretation and application of
relevant independence rules and guidelines, and
(4)&nbsp;requiring RSM employees to comply with M&#38;P&#146;s
independence and relationship policies (including M&#38;P&#146;s
independence compliance questionnaire procedures). We believe
these policies, procedures and controls are adequate, although
there can be no assurances they will ensure compliance with
applicable independence rules and requirements. Any
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 9</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
noncompliance could cause M&#38;P to lose the ability to perform
audits of financial statements filed with the SEC.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See discussion in &#147;Risk Factors&#148; for additional
information.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "INVESTMENT SERVICES" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INVESTMENT SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">GENERAL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
Investment Services segment provides brokerage services and
investment planning through HRBFA to our clients in the
U.S.&nbsp;Services offered to our customers include traditional
brokerage services, as well as annuities, insurance, fee-based
accounts, online account access, equity research and focus
lists, model portfolios, asset allocation strategies, and other
investment tools and information. Segment revenues constituted
5.4% of our consolidated revenues for fiscal years 2005, 2004
and&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
HRBFA is a registered broker-dealer with the SEC and is a member
of the New York Stock Exchange (&#147;NYSE&#148;), other
national securities exchanges, Securities Investor Protection
Corporation (&#147;SIPC&#148;), and the National Association of
Securities Dealers, Inc. (&#147;NASD&#148;). HRBFA is also a
registered investment&nbsp;advisor.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The integration of investment advice with our tax client base
allows us to leverage an already established relationship. In
the past two years, new service offerings have allowed us to
shift our focus from a transaction-based client relationship to
a more advice-based focus.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CUSTOMER
ACTIVITY</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Customer
trades in fiscal year 2005 totaled approximately
0.9&nbsp;million, compared to approximately 1.0&nbsp;million in
2004 and approximately 0.9&nbsp;million in 2003. Average revenue
per trade increased to $123.33 in fiscal year 2005, up from
$119.36 in 2004 and $120.15 in 2003. We had 431,749 traditional
brokerage accounts at April&nbsp;30, 2005, compared to 463,736
at 2004 and 501,001 at 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">FINANCIAL SERVICES
OFFERINGS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
offer a full range of financial services, including financial
planning, college savings products, flexible brokerage accounts
with cash management features, and a comprehensive line of
insurance annuity products. Clients may also open professionally
managed accounts.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As previously discussed in &#147;Tax Services,&#148; we offer
our tax clients the opportunity to open an Express IRA through
HRBFA as a part of the tax return preparation process. Clients
opened approximately 106,500 Express IRAs during tax season
2005, approximately 145,400 in 2004 and approximately 105,400 in
2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We act as a dealer in fixed income markets including corporate
and municipal bonds, various U.S.&nbsp;Government and
U.S.&nbsp;Government Agency securities and certificates of
deposit.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">FINANCIAL
ADVISORS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Key
to our future success is retention and recruiting productive
financial advisors. One of our key initiatives in fiscal year
2005 was to build revenues through the addition of financial
advisors. During fiscal years 2005 and 2004, we added 258 and
255 advisors, respectively. These additions were offset by
attrition of 233 and 230 advisors, respectively. Our overall
retention rate for fiscal year 2005 was approximately 77%,
essentially flat with the prior year. The retention rate for our
higher-producing advisors was approximately 92%, down slightly
from 93% in 2004. Advisor productivity by recruitment class is
as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenue</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total Production</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Per Advisor</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenues</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Fiscal year 2005&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pre-2003 class</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>230</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>121,342</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003 recruits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>114</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>16,416</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004 recruits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>98</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>19,941</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005 recruits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>65</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,203</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Fiscal year 2004&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pre-2003 class</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>135,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003 recruits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004 recruits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Financial advisors generally reach full productivity levels
approximately 24 to 36&nbsp;months after they join our company.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PARTNERING WITH TAX
PROFESSIONALS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
H&#38;R&nbsp;Block Preferred Partner
Program<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">sm</FONT></SUP>
facilitates strategic, referral-based partnerships between tax
professionals and financial advisors. The program includes the
Licensed Referral Tax Professional (&#147;LRTP&#148;) program
and, new for fiscal year 2005, a non-licensed option, which
allows non-licensed tax professionals to gain additional rewards
and recognition when making qualified client referrals to
financial advisor partners. The LRTP program helps tax
professionals become licensed to sell securities, teaming them
with a financial advisor and providing a&nbsp;commission to the
LRTP for business referred to Investment&nbsp;Services.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of April&nbsp;30, 2005, our Preferred Partner Program had
6,442&nbsp;active tax partners, of which 686 were licensed. We
had 461&nbsp;licensed tax partners at the end of fiscal year
2004. As a result of this initiative, we added 18,164 new
customer accounts and assets totaling $573.0&nbsp;million during
the current fiscal year. We will continue to increase the number
of tax partners in the coming year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INTEGRATED ONLINE
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have an online investment center on our website at
<I>www.hrblock.com.</I> Online users have the opportunity to
open accounts, obtain research, create investment plans, buy and
sell securities, and view the status of their accounts.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 10</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">OFFICE
LOCATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;HRBFA
is authorized to do business as a broker-dealer in all
50&nbsp;states, the District of Columbia and Puerto Rico. At the
end of fiscal year 2005, we operated 257&nbsp;branch offices,
compared to approximately 358 offices in 2004 and 600 in 2003.
The reduced number of branch offices is primarily due to the
evolution of our tax-partnering program, which now locates
financial advisors in retail tax offices. At April&nbsp;30,
2005, we had 94 offices co-located with retail tax and mortgage
offices. We believe the existence of these locations contributes
to our growth and client satisfaction.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMPETITIVE
CONDITIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;HRBFA
competes directly with a broad range of companies seeking to
attract consumer financial assets, including full-service
brokerage firms, discount and online brokerage firms, mutual
fund companies, investment banking firms, commercial and savings
banks, insurance companies and others. The financial services
industry has become considerably more concentrated as numerous
securities firms have been acquired by or merged into other
firms. Some of these competitors have greater financial
resources than HRBFA and offer additional financial services. In
addition, we expect competition from domestic and international
commercial banks and larger securities firms to continue to
increase as a result of legislative and regulatory initiatives
in the U.S., including the passage of the Gramm-Leach-Bliley Act
in November&nbsp;1999 and the implementation of the U.S.A.
Patriot Act in April&nbsp;2002. These initiatives strive to
remove or relieve certain restrictions on mergers between
commercial banks and other types of financial services providers
and extend privacy provisions and anti-money laundering
procedures across the financial services industry.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Discount brokerage firms and online-only financial services
providers compete vigorously with HRBFA with respect to
commission charges. Some full-commission brokerage firms also
offer greater product breadth, discounted commissions and more
robust online services to selected retail brokerage customers.
Additionally, some competitors in both the full-commission and
discount brokerage industries have substantially increased their
spending on advertising and direct solicitation of customers.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Competition in the online trading business has become similarly
intense as recent expansion and customer acceptance of
conducting financial transactions online has attracted new
brokerage firms to the market.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We compete based on quality of service, breadth of services
offered, prices, accessibility through delivery channels,
technological innovation and expertise and integration with our
tax services relationships.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SEASONALITY OF
BUSINESS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
Investment Services segment does not, as a whole, experience
significant seasonal fluctuations. The securities business is
cyclical, however, and directly affected by national and global
economic and political conditions, trends in business and
finance and changes in the conditions of the securities markets
in which our clients invest.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GOVERNMENT
REGULATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
securities industry is subject to extensive regulation covering
all aspects of the securities business, including registration
of our offices and personnel, sales methods, the acceptance and
execution of customer orders, the handling of customer funds and
securities, trading practices, capital structure, record keeping
policies and practices, margin lending, execution and settlement
of transactions, the conduct of directors, officers and
employees, and the supervision of employees. The various
governmental authorities and industry self-regulatory
organizations that have supervisory and regulatory jurisdiction
over us generally have broad enforcement powers to censure,
fine, issue cease-and-desist orders or suspend or expel a
broker-dealer or any of its officers or employees who violate
applicable laws or regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The SEC is the federal agency responsible for the administration
of the federal securities laws. The SEC has delegated much of
the regulation of broker-dealers to self-regulatory
organizations, principally the NASD, Inc., Municipal Securities
Rulemaking Board and the NYSE, which has been designated as
HRBFA&#146;s primary regulator. These self-regulatory
organizations adopt rules, subject to SEC approval, governing
the industry and conduct periodic examinations of HRBFA&#146;s
brokerage operations and clearing activities. Securities firms
are also subject to regulation by state securities
administrators in states in which they conduct business.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As a registered broker-dealer, HRBFA is subject to the Net
Capital Rule (Rule&nbsp;15c3-1) promulgated by the SEC and
adopted through incorporation by reference in NYSE
Rule&nbsp;325. The Rule, which specifies minimum net capital
requirements for registered brokers and dealers, is designed to
measure the financial soundness and liquidity of a broker-dealer
and requires at least a minimum portion of its assets be kept in
liquid form. Additional discussion of this requirement and
HRBFA&#146;s calculation of net capital is located in
Item&nbsp;7, under &#147;Capital Resources and Liquidity by
Segment.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See discussion in &#147;Risk Factors&#148; for additional
information.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

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<A name='110'></A>
</DIV>

<!-- link1 "SERVICE MARKS, TRADEMARKS AND PATENTS ..." -->

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</DIV>

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</DIV>

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<B>SERVICE MARKS, TRADEMARKS AND PATENTS ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have made a practice of selling our services and products
under service marks and trademarks and of obtaining protection
for these by all available means. Our service marks and
trademarks are protected by registration in the U.S. and other
countries where our services and products are marketed. We
consider these service marks and trademarks, in the aggregate,
to be of material importance to our business, particularly our
business segments providing services and products under the
&#147;H&#38;R Block&#148; brand.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have no registered patents that are material to our business.
</DIV>

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<A name='111'></A>
</DIV>

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</DIV>

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<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EMPLOYEES ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have approximately 13,400 regular full-time employees. The
highest number of persons we employed during the fiscal year
ended April&nbsp;30, 2005, including seasonal employees, was
approximately 133,800.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='112'></A>
</DIV>

<!-- link1 "RISK FACTORS ..." -->

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</DIV>

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<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RISK FACTORS ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
In this report, and from time to time throughout the year, we
share our expectations for the Company&#146;s future
performance. The following explains the critical risk factors
impacting our business and reasons actual results may differ
from our expectations. This discussion does not intend to be a
comprehensive list and there may be other risks and factors that
may have an effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LIQUIDITY AND
CAPITAL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
use capital primarily to fund working capital requirements, pay
dividends, repurchase shares of our common stock and acquire
businesses. We are dependent on the use of our off-balance sheet
arrangements to fund our daily non-prime originations and the
secondary market to securitize and sell mortgage loans and
residual interests. See Item&nbsp;7, under &#147;Off-Balance
Sheet Financing Arrangements.&#148; We are also dependent on
commercial paper issuances and/or bank lines to fund RAL
participations and seasonal working capital needs. A disruption
in such markets could adversely affect our access to these
funds. To meet our future financing needs, we may issue
additional debt or equity securities.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
are involved in lawsuits in the normal course of our business
related to RALs, our Peace of Mind guarantee program, electronic
filing of tax returns, Express IRAs, losses incurred by
customers in their investment accounts, mortgage lending
activities and other matters. Adverse outcomes related to
litigation could result in substantial damages and could
adversely affect our results of operations. Negative public
opinion can also result from our actual or alleged conduct in
such claims, possibly damaging our reputation and adversely
affecting the market price of our stock. See Item&nbsp;3,
&#147;Legal Proceedings&#148; for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PRIVACY OF CLIENT
INFORMATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
manage highly sensitive client information in all of our
operating segments, which is regulated by law. Problems with the
safeguarding and proper use of this information could result in
regulatory actions and negative publicity, which could adversely
affect our reputation and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INTERNAL CONTROL
CERTIFICATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have documented and tested our internal control procedures in
accordance with various SEC rules governing Section&nbsp;404 of
the Sarbanes-Oxley Act (&#147;SOX 404&#148;). SOX 404 requires
us to assess the effectiveness of our internal controls over
financial reporting annually, and obtain an opinion on these
controls from our Independent Registered Public Accounting Firm.
We may encounter problems or delays in completing the review and
evaluation, the implementation of improvements and the receipt
of a positive attestation, or any attestation at all, by our
independent auditors. Additionally, management&#146;s assessment
of our internal controls over financial reporting may identify
deficiencies that need to be addressed in our internal controls
over financial reporting or other matters that may raise
concerns for investors. As a part of Management&#146;s
assessment of our internal controls over financial reporting as
of April&nbsp;30, 2005, a material weakness was identified in
the Company&#146;s accounting for income taxes. The material
weakness in internal controls resulted from insufficient
resources in the corporate tax function to accurately identify,
evaluate and report, in a timely manner, non-routine and complex
transactions. The Company also determined that it had not
completed the requisite historical analysis and related
reconciliations to ensure tax balances were appropriately stated
prior to the completion of the Company&#146;s internal control
activities. These deficiencies resulted in errors in the
Company&#146;s accounting for income taxes. These errors were
corrected prior to issuance of the consolidated financial
statements as of and for the year ended April&nbsp;30, 2005. As
a result, KPMG has issued an adverse opinion with respect to our
internal controls over financial reporting and their report is
included in Item&nbsp;8. Should we, or our independent auditors,
determine in future periods that we have additional material
weaknesses in our internal controls over financial reporting,
our results of
</DIV>

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</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
operations or financial condition may be adversely affected and
the price of our common stock may decline.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">OPERATIONAL
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;There
is a risk of loss resulting from inadequate or failed processes
or systems, theft or fraud. These can occur in many forms
including, among others, errors, business interruptions,
inappropriate behavior of or misconduct by our employees or
those contracted to perform services for us, and vendors that do
not perform in accordance with their contractual agreements.
These events can potentially result in financial losses or other
damages. We rely on internal and external information and
technological systems to manage our operations and are exposed
to risk of loss resulting from breaches in the security, or
other failures of these systems. Replacement of our major
operational systems could have a significant impact on our
ability to conduct our core business operations and increase our
risk of loss resulting from disruptions of normal operating
processes and procedures that may occur during the
implementation of new information and transaction systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TAX SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">COMPETITIVE
POSITION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Increased
competition for tax preparation clients in our retail offices,
online and software channels could adversely affect our current
market share and limit our ability to grow our client base. See
clients served statistics included in Item&nbsp;7, under
&#147;Tax Services.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">REFUND ANTICIPATION
LOANS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Changes
in government regulation related to RALs could adversely affect
our ability to offer RALs or our ability to purchase
participation interests. Changes in IRS practices could
adversely affect our ability to use the IRS debt indicator to
limit our bad debt exposure. Changes in any of these, as well as
possible litigation related to RALs, may adversely affect our
results of operations. See discussion of RAL litigation in
Item&nbsp;3, &#147;Legal Proceedings.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MORTGAGE SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">COMPETITIVE
POSITION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
majority of our mortgage loan applications are submitted through
a network of brokers who have relationships with many other
mortgage lenders. Unfavorable changes in our pricing, service or
other factors could result in a decline in our mortgage
origination volume. A decline in our servicer ratings could
adversely affect our pricing and origination volume. Increased
competition among mortgage lenders can also result in a decline
in coupon rates offered to our borrowers, which in turn lowers
margins and could adversely affect our gains on sales of
mortgage loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MARKET
RISKS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
day-to-day operating activities of originating and selling
mortgage loans have many aspects of interest rate risk.
Additionally, the valuation of our retained residual interests
and mortgage servicing rights includes many estimates and
assumptions made by management surrounding interest rates,
prepayment speeds and credit losses. Variation in interest rates
or the factors underlying our assumptions could affect our
results of operations. See Item&nbsp;7A, under &#147;Mortgage
Services,&#148; for discussion of interest rate risk, and
Item&nbsp;7, under &#147;Critical Accounting Policies,&#148; for
discussion of our valuation methodology.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LEGISLATION AND
REGULATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Several
states and cities are considering or have passed laws,
regulations or ordinances aimed at curbing predatory lending and
servicing practices. The federal government is also considering
legislative and regulatory proposals in this regard. In general,
these proposals involve lowering the existing federal HOEPA
thresholds for defining a &#147;high-cost&#148; loan and
establishing enhanced protections and remedies for borrowers who
receive such loans. If unfavorable laws and regulations are
passed, it could restrict our ability to originate loans. If
rating agencies refuse to rate our loans, loan buyers may not
want to purchase loans labeled as &#147;high-cost,&#148; and it
could restrict our ability to sell our loans in the secondary
market. Accordingly, all of these items could adversely affect
our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In 2002, the Federal Reserve Board adopted changes to
Regulation&nbsp;C promulgated under the HMDA. Among other
things, the new regulations require lenders to report pricing
data on loans with annual percentage rates that exceed the yield
on treasury bills with comparable maturities by 3%. The expanded
reporting takes effect in 2004 for reports filed in 2005. We
anticipate that a majority of our loans would be subject to the
expanded reporting requirements. The expanded reporting does not
provide for additional loan information such as credit risk,
debt-to-income ratio, loan-to-value ratio, documentation level
or other salient loan features. However, reported information
may lead to increased litigation as the information could be
misinterpreted by third parties and could adversely affect our
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COUNTERPARTY CREDIT
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Derivative
instruments involve counterparty credit risk, which is the risk
that a counterparty may fail to perform on its contractual
obligations. We manage this risk through the use of a policy
that includes credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition,
use of master netting agreements with counterparties, and
exposure limits based on counterparty credit, exposure amount
and management risk tolerance. The policy is reviewed on an
annual basis and as conditions warrant. See Item&nbsp;7A, under
&#147;Mortgage Services,&#148; and Item&nbsp;8, note&nbsp;9 to
our consolidated financial statements for discussion of our
derivative instruments.
</DIV>

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</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">REAL ESTATE
MARKET</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
residual interests and beneficial interest in Trusts are secured
by mortgage loans, which are in turn secured by residential real
estate. Any material decline in real estate values would likely
result in higher delinquencies, defaults and foreclosures.
Additionally, a significant portion of the mortgage loans we
originate or service is secured by properties in California. A
decline in the economy or the residential real estate market
values, or the occurrence of a natural disaster not covered by
standard homeowners&#146; insurance policies, such as an
earthquake, hurricane or wildfire, could decrease the value of
mortgaged properties in California. Any sustained period of
increased delinquencies, foreclosures or losses could harm our
ability to originate and sell loans, the prices we receive on
our loans, or the values of our mortgage servicing rights and
residual interests in securitizations, which could adversely
affect our financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BUSINESS SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">ALTERNATIVE PRACTICE STRUCTURE WITH
M&#38;P</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
relationship with M&#38;P requires us to comply with applicable
auditor independence rules and requirements. In addition, our
relationship with M&#38;P closely links our RSM McGladrey brand
with M&#38;P. If M&#38;P were to encounter problems concerning
its independence as a result of its relationship with us or if
significant litigation arose concerning M&#38;P or its services,
our brand reputation and our ability to realize the mutual
benefits of our relationship, such as the ability to attract and
retain quality professionals, could be impaired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INVESTMENT SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">REGULATORY
ENVIRONMENT</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
broker-dealer industry has recently come under increased
scrutiny by federal and state regulators and self-regulatory
agencies and, as a result, more focus has been placed on
compliance issues. If we do not comply with these regulations,
it could result in regulatory actions and negative publicity,
which could adversely affect our results of operations and our
ability to recruit and retain qualified advisors. Negative
public opinion about our industry could damage our reputation
even if we are in compliance with such regulations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INTEGRATION INTO THE H&#38;R BLOCK
BRAND</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
are working to foster an advice-based relationship with our tax
clients through our retail tax office network. This advice-based
relationship is key to the integration of Investment Services
into the H&#38;R Block brand and deepening our current client
relationships. If we are unable to successfully integrate, it
may significantly impact our ability to differentiate our
business from other tax providers and grow our client base.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECRUITING AND RETENTION OF FINANCIAL
ADVISORS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Attracting
and retaining experienced financial advisors is extremely
competitive in the investment industry. Additionally, in this
industry, clients tend to follow their advisors, regardless of
their affiliated investment firm. The inability to recruit and
retain qualified and productive advisors, may adversely affect
our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECURRING OPERATING
LOSSES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Continuing
operating losses in our Investment Services segment may impact
the valuation of goodwill and intangible assets. Such losses
could also necessitate additional capital contributions to
comply with regulatory requirements. The inability to operate
this segment in a profitable manner may adversely affect our
results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>AVAILABILITY OF REPORTS AND OTHER INFORMATION ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Our annual report on Form&nbsp;10-K, quarterly reports on
Form&nbsp;10-Q, current reports on Form&nbsp;8-K, and all
amendments to those reports filed with or furnished to the SEC
are available, free of charge, through our website at
<I>www.hrblock.com </I>as soon as reasonably practicable after
such reports are electronically filed with or furnished to the
SEC.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Copies of the following corporate governance documents are
posted on our website: (1)&nbsp;The Amended and Restated
Articles of Incorporation of H&#38;R Block, Inc., (2)&nbsp;The
Amended and Restated Bylaws of H&#38;R Block, Inc., (3)&nbsp;The
H&#38;R Block, Inc. Corporate Governance Guidelines,
(4)&nbsp;the H&#38;R Block, Inc. Code of Business Ethics and
Conduct, (5)&nbsp;the H&#38;R Block, Inc. Audit Committee
Charter, (6)&nbsp;the H&#38;R Block, Inc. Governance and
Nominating Committee Charter, and (7)&nbsp;the H&#38;R Block,
Inc. Compensation Committee Charter. If you would like a printed
copy of any of these corporate governance documents, please send
your request to the Office of the Secretary, H&#38;R Block,
Inc., 4400 Main Street, Kansas City, Missouri 64111.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Information contained on our website does not constitute any
part of this report.
</DIV>

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    <TD>&nbsp;</TD>
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</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<A name='114'></A>
</DIV>

<!-- link1 "ITEM 2. PROPERTIES" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM&nbsp;2.&nbsp;PROPERTIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We own our corporate headquarters, which are located in Kansas
City, Missouri. We have leased additional office space for
corporate, Tax Services and Investment Services personnel, as
necessary, in Kansas City, Missouri.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Most of our tax offices, except those in shared locations, are
operated under leases throughout the U.S.&nbsp;Our Canadian
executive offices are located in a leased office in Calgary,
Alberta. Our Canadian tax offices are operated under leases
throughout Canada.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Option One&#146;s executive offices are located in leased
offices in Irvine, California. HRBMC is headquartered in leased
offices in Lake Forest, California. Option One and HRBMC also
lease offices for their loan origination and servicing centers
and branch office operations throughout the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The executive offices of HRBFA are located in leased offices in
Detroit, Michigan. Branch offices are operated throughout the
U.S., in a combination of leased and owned facilities.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
RSM&#146;s executive offices are located in leased offices in
Bloomington, Minnesota. Its administrative offices are located
in leased offices in Davenport, Iowa. RSM also leases office
space throughout the U.S.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We began construction of new corporate headquarters during
fiscal year 2005, which will allow us to consolidate the
majority of our Kansas City-based personnel into one facility.
The new building will be located in downtown Kansas City,
Missouri and we expect it to be completed in fiscal year 2007.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
All current leased and owned facilities are in good repair and
adequate to meet our needs.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='115'></A>
</DIV>

<!-- link1 "ITEM 3. LEGAL PROCEEDINGS" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM&nbsp;3.&nbsp;LEGAL PROCEEDINGS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The information below should be read in conjunction with the
information included in Item&nbsp;8, note&nbsp;18 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RAL
LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have been named as a defendant in numerous lawsuits throughout
the country regarding our refund anticipation loan programs
(collectively, &#147;RAL Cases&#148;). Plaintiffs in the RAL
Cases have alleged, among other things, that disclosures in the
RAL applications were inadequate, misleading and untimely; that
the RAL interest rates were usurious and unconscionable; that we
did not disclose that we would receive part of the finance
charges paid by the customer for such loans; breach of state
laws on credit service organizations; breach of contract; unjust
enrichment; unfair and deceptive acts or practices; violations
of the Racketeer Influenced and Corrupt Organizations Act;
violations of the Fair Debt Collection Practices Act; and that
we owe, and breached, a fiduciary duty to our customers in
connection with the RAL program. In many of the RAL Cases, the
plaintiffs seek to proceed on behalf of a class of similarly
situated RAL customers, and in certain instances the courts have
allowed the cases to proceed as class actions. In other cases,
courts have held that plaintiffs must pursue their claims on an
individual basis, and may not proceed as a class action. The
amounts claimed in the RAL Cases have been very substantial in
some instances.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have successfully defended against numerous RAL Cases,
although several of the RAL Cases are still pending. Of the RAL
Cases that are no longer pending, some were dismissed on our
motions for dismissal or summary judgment and others were
dismissed voluntarily by the plaintiffs after denial of class
certification. Other cases were settled, with one settlement
resulting in a pretax expense of $43.5&nbsp;million in fiscal
year 2003 (the &#147;Texas RAL Settlement&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe we have meritorious defenses to the RAL Cases and we
intend to defend the remaining RAL Cases vigorously. There can
be no assurances, however, as to the outcome of the pending RAL
Cases individually or in the aggregate. Likewise, there can be
no assurances regarding the impact of the RAL Cases on our
financial statements. We have accrued our best estimate of the
probable loss related to the RAL Cases. The following is updated
information regarding the pending RAL Cases that are class
actions or putative class actions:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Lynne A. Carnegie, et&nbsp;al. v. Household International,
Inc., H&#38;R Block, Inc., et&nbsp;al.,</I> (formerly Joel E.
Zawikowski, et&nbsp;al. v. Beneficial National Bank, H&#38;R
Block, Inc., Block Financial Corporation, et&nbsp;al.) Case
No.&nbsp;98 C 2178, United States District Court for the
Northern District of Illinois, Eastern Division, instituted on
April&nbsp;18, 1998. In March 2004, the court either dismissed
or decertified all of the plaintiffs&#146; claims other than
part of one count alleging violations of the racketeering and
conspiracy provisions of the Racketeer Influenced and Corrupt
Organizations Act. On May&nbsp;9, 2005, the parties agreed to a
settlement, subject to court approval. The settlement agreement
provided for (i)&nbsp;the defendants to pay $110&nbsp;million in
cash and $250&nbsp;million face value in freely transferable
rebate coupons and (ii)&nbsp;all persons who applied for and
obtained a RAL through an H&#38;R Block office or certain
lenders from January&nbsp;1, 1987 through April&nbsp;29, 2005
(the &#147;Carnegie Settlement Class&#148;) to release all
claims against us regarding RALs or certain services provided in
</DIV>

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    <TD width="99%"></TD>
    <TD width="1%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 15</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
connection with RALs. The settlement agreement also specified
required business practices, procedures, disclosures and forms
for use in making RALs and barred members of the Carnegie
Settlement Class from commencing any other claims or actions
against us regarding RALs made pursuant to such practices,
procedures, disclosures and forms (the &#147;Forward Looking
Protections&#148;). In negotiating the settlement, we ascribed
significant value to the Forward-Looking Protections and the
expanded class of plaintiffs to be covered by the settlement in
determining the amount of consideration we were willing to pay
in settling the case. On May&nbsp;26, 2005, the court denied
approval of the proposed settlement. As discussed in our
Form&nbsp;8-K dated May&nbsp;9, 2005, we initially recorded
litigation reserves of approximately $38.0&nbsp;million, after
taxes, based on the May&nbsp;9, 2005 proposed settlement. As a
result of the May&nbsp;26, 2005 court ruling to deny the
settlement, we reversed our legal reserves to amounts
representing our assessment of our probable loss. This class
action case is scheduled to go to trial on October&nbsp;17,
2005. We intend to continue defending the case vigorously, but
there are no assurances as to its outcome.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Sandra J. Basile, et&nbsp;al. v. H&#38;R Block, Inc.,
et&nbsp;al,</I> April Term 1992 Civil Action No.&nbsp;3246 in
the Court of Common Pleas, First Judicial District of
Pennsylvania, Philadelphia County, instituted on April&nbsp;23,
1993. The court decertified the class on December&nbsp;31, 2003.
Plaintiffs appealed the decertification, and the Pennsylvania
appellate court denied the plaintiff&#146;s appeal. The
Pennsylvania appellate court subsequently granted
plaintiff&#146;s motion for <I>en banc </I>review of its earlier
denial of plaintiff&#146;s appeal. Re-argument is expected to
occur in September 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Levon and Geral Mitchell, et&nbsp;al. v. H&#38;R Block and
Ruth R. Wren,</I> Case No.CV-95-2067, in the Circuit Court of
Mobile County, Alabama, instituted on June&nbsp;13, 1995.
Plaintiffs&#146; motion for class certification was granted, and
defendants appealed the certification. The appeal is pending
before the Alabama Supreme Court.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Deandra D. Cummins, et&nbsp;al. v. H&#38;R Block, Inc.,
et&nbsp;al.</I>, Case No.&nbsp;03-C-134 in the Circuit Court of
Kanawha County, West Virginia, instituted on January&nbsp;22,
2003. This class action case is scheduled to go to trial on
October&nbsp;17, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Lynn Becker&nbsp;v. H&#38;R&nbsp;Block,</I> Case
No.&nbsp;CV-2004-03-1680 in the Court of Common Pleas, Summit
County, Ohio, instituted on April&nbsp;15, 2004. The case was
removed to federal court, and plaintiffs moved to remand the
case back to state court. The case currently is stayed pending
the U.S.&nbsp;District Court&#146;s ruling on plaintiff&#146;s
motion to remand and defendant&#146;s motion to compel
arbitration.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<I>Joyce Green, et&nbsp;al. v. H&#38;R&nbsp;Block, Inc., Block
Financial Corporation, et&nbsp;al.</I>, Case No.&nbsp;97195023,
in the Circuit Court for Baltimore City, Maryland, instituted on
July&nbsp;14, 1997. This case is awaiting trial. No trial date
has been set.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PEACE OF MIND
LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;<I>Lorie
J. Marshall, et&nbsp;al.&nbsp;v. H&#38;R&nbsp;Block Tax
Services, Inc., et&nbsp;al.</I>, Civil Action 2003L000004, in
the Circuit Court of Madison County, Illinois, is a class action
case filed on January&nbsp;18, 2003, that was granted class
certification on August&nbsp;27, 2003. Plaintiffs&#146; claims
consist of five counts relating to the POM program under which
the applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax
return preparation error. The plaintiffs allege that the sale of
POM guarantees constitutes (i)&nbsp;statutory fraud by selling
insurance without a license, (ii)&nbsp;an unfair trade practice,
by omission and by &#147;cramming&#148;
(<I>i.e.</I>,&nbsp;charging customers for the guarantee even
though they did not request it or want it), and (iii)&nbsp;a
breach of fiduciary duty. In August 2003, the court certified
the plaintiff classes consisting of all persons who from
January&nbsp;1, 1997 to final judgment (i)&nbsp;were charged a
separate fee for POM by &#147;H&#38;R&nbsp;Block&#148; or a
defendant H&#38;R&nbsp;Block class member; (ii)&nbsp;reside in
certain class states and were charged a separate fee for POM by
&#147;H&#38;R&nbsp;Block&#148; or a defendant H&#38;R&nbsp;Block
class member not licensed to sell insurance; and (iii)&nbsp;had
an unsolicited charge for POM posted to their bills by
&#147;H&#38;R&nbsp;Block&#148; or a defendant H&#38;R&nbsp;Block
class member. Persons who received the POM guarantee through an
H&#38;R&nbsp;Block Premium office and persons who reside in
Alabama are excluded from the plaintiff class. The court also
certified a defendant class consisting of any entity with names
that include &#147;H&#38;R&nbsp;Block&#148; or &#147;HRB,&#148;
or are otherwise affiliated or associated with
H&#38;R&nbsp;Block Tax Services, Inc., and that sold or sells
the POM product. The trial court subsequently denied the
defendants&#146; motion to certify class certification issues
for interlocutory appeal. Discovery is proceeding. No trial date
has been set.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
There is one other putative class action pending against us in
Texas that involves the Peace of Mind guarantee. This case is
being tried before the same judge that presided over the Texas
RAL Settlement and involves the same plaintiffs attorneys that
are involved in the Marshall litigation in Illinois and
substantially similar allegations. No class has been certified
in this case.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the claims in the POM action are without merit, and
we intend to defend them vigorously. The amounts claimed in the
POM actions are substantial, however, and there can be no
assurances, as to the outcome of these pending actions
individually or in the aggregate. Likewise, there can be no
assurances regarding the impact of these actions on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">OTHER CLAIMS AND
LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;As
reported in a current report on Form&nbsp;8-K dated
November&nbsp;8, 2004, the NASD brought charges against HRBFA
regarding the sale by HRBFA of
</DIV>

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    <TD width="1%"></TD>
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<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 16</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
Enron debentures in 2001. A hearing for this matter is scheduled
for May 2006. Two private civil actions subsequently were filed
against HRBFA concerning the matter raised in the NASD&#146;s
charges. Both of these private actions subsequently were
dismissed without prejudice, although one of the actions has
since been refiled. We intend to defend the NASD charges
vigorously, although there can be no assurances regarding the
outcome and resolution of the matter.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As part of an industry-wide review, the IRS is investigating
tax-planning strategies that certain RSM clients utilized during
fiscal years 2000 through 2003. Specifically, the IRS is
examining these strategies to determine whether RSM complied
with tax shelter registration and listing regulations and
whether such strategies were appropriate. If the IRS were to
determine that these strategies were inappropriate, clients that
utilized the strategies could face penalties and interest for
underpayment of taxes. Some of these clients are seeking, or may
attempt to seek, recovery from RSM. While there can be no
assurance regarding the outcome of this matter, we do not
believe its resolution will have a material adverse effect on
our operations or consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As reported in current report on Form&nbsp;8-K dated
December&nbsp;12, 2003, the SEC informed our outside counsel on
December&nbsp;11, 2003 that the Commission had issued a Formal
Order of Investigation concerning our disclosures, in and before
November 2003, regarding RAL litigation to which we were and are
a party. There can be no assurances as to the outcome and
resolution of this matter.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have from time to time been party to claims and lawsuits not
discussed herein arising out of our business operations. These
claims and lawsuits include actions by individual plaintiffs, as
well as cases in which plaintiffs seek to represent a class of
similarly situated customers. The amounts claimed in these
claims and lawsuits are substantial in some instances, and the
ultimate liability with respect to such litigation and claims is
difficult to predict. Some of these claims and lawsuits pertain
to RALs, the electronic filing of customers&#146; income tax
returns and the POM guarantee program. We believe we have
meritorious defenses to each of these claims, and we are
defending or intend to defend them vigorously, although there is
no assurance as to their outcome.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In addition to the aforementioned types of cases, we are parties
to claims and lawsuits that we consider to be ordinary, routine
litigation incidental to our business, including claims and
lawsuits (&#147;Other Claims&#148;) concerning investment
products, the preparation of customers&#146; income tax returns,
the fees charged customers for various products and services,
losses incurred by customers with respect to their investment
accounts, relationships with franchisees, denials of mortgage
loans, contested mortgage foreclosures, other aspects of the
mortgage business, intellectual property disputes, and contract
disputes. We believe we have meritorious defenses to each of the
Other Claims, and we are defending, or intend to defend, them
vigorously. While we cannot provide assurance that we will
ultimately prevail in each instance, we believe the amount, if
any, we are required to pay in the discharge of liabilities or
settlements in these Other Claims will not have a material
adverse effect on our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='116'></A>
</DIV>

<!-- link1 "ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" -->

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    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;4.&nbsp;</B></TD>
    <TD align="left">
    <B>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
No matters were submitted to a vote of security holders during
the fourth quarter of fiscal year 2005. Information regarding
executive officers is contained in Item&nbsp;10 of this report.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='117'></A>
</DIV>

<!-- link1 "PART II" -->

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">PART&nbsp;II</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='118'></A>
</DIV>

<!-- link1 "ITEM 5. MARKET FOR THE REGISTRANT&#146;S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES" -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

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    <TD width="93%"></TD>
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<TR valign="top">
    <TD><B>ITEM&nbsp;5.&nbsp;</B></TD>
    <TD align="left">
    <B>MARKET FOR THE REGISTRANT&#146;S COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
H&#38;R Block&#146;s common stock is traded principally on the
NYSE and is also traded on the Pacific Exchange. The information
called for by this item with respect to H&#38;R Block&#146;s
common stock appears in Item&nbsp;8, note&nbsp;21 to our
consolidated financial statements. The remaining information
called for by this item relating to &#147;Securities Authorized
for Issuance under Equity Compensation Plans&#148; is reported
in Item&nbsp;8, note&nbsp;13 to our consolidated financial
statements. On July&nbsp;5, 2005, there were
30,909&nbsp;shareholders of record and the closing stock price
on the NYSE was $58.73&nbsp;per share.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

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    <TD width="99%"></TD>
    <TD width="1%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 17</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
A summary of our purchases of H&#38;R Block common stock during
the fourth quarter of fiscal year 2005 is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="21%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="right" nowrap>(shares in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="9">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total Number of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Maximum Number</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares Purchased as</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>of Shares that May Be</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Number of Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Price Paid</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Part of Publicly Announced</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Purchased Under the</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Purchased<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>per Share</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Plans or Programs<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Plans or Programs<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    February 1&nbsp;&#150; February&nbsp;28</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>50.82</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,104</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    March&nbsp;1&nbsp;&#150; March&nbsp;31</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>51.87</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,104</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    April&nbsp;1&nbsp;&#150; April&nbsp;30</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>50.70</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,104</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    On June&nbsp;11, 2003, our Board of Directors approved the
    repurchase of 20&nbsp;million shares of H&#38;R&nbsp;Block
    common stock. This authorization has no expiration date. On
    June&nbsp;9, 2004, our Board of Directors approved the
    additional repurchase of 15&nbsp;million shares of
    H&#38;R&nbsp;Block common stock. This authorization has no
    expiration date.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    The total number of shares purchased were purchased in
    connection with funding employee income tax withholding
    obligations arising upon the exercise of stock options or the
    lapse of restrictions on restricted shares.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='119'></A>
</DIV>

<!-- link1 "ITEM 6. SELECTED FINANCIAL DATA" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM&nbsp;6.&nbsp;SELECTED FINANCIAL DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We derived the selected historical consolidated financial data
presented below as of and for each of the five years in the
period ended April&nbsp;30, 2005 from our consolidated financial
statements. The data for the periods prior to fiscal year 2005
has been restated to reflect corrections to gain on sale
accounting, incentive compensation accruals, lease accounting,
capitalization of certain branch office costs, acquisition
accounting and income taxes as more fully described in
Item&nbsp;8, note&nbsp;2 to our consolidated financial
statements. The data set forth below should be read in
conjunction with Item&nbsp;7 and our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The impact of the restatement on fiscal year 2002 resulted in an
increase in net income of $6.9&nbsp;million, or $.04&nbsp;per
basic and diluted share, and a decrease of $9.5&nbsp;million in
total assets. The impact on fiscal year 2001 resulted in an
increase in net income of $1.5&nbsp;million, or $.01&nbsp;per
basic and diluted share, and an increase of $4.9&nbsp;million in
total assets.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2002</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2001</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,311,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,982,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>441,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>278,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>441,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>282,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="24">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.53</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="24">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,666,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,396,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,170,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>923,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>822,302</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>868,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>870,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="24">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='120'></A>
</DIV>

<!-- link1 "ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="7%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;7.&nbsp;</B></TD>
    <TD align="left">
    <B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
<I>The accompanying Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations reflects the
restatement of previously issued financial statements, as
discussed in Item&nbsp;8, note&nbsp;2 to our consolidated
financial statements.</I>
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are a diversified company with subsidiaries delivering tax,
investment, mortgage and business services and products. We are
the only major company offering a full range of software, online
and in-office tax preparation solutions, combined with
personalized financial advice concerning retirement savings,
home ownership and other opportunities to help clients build a
better financial future.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our key strategic priorities can be summarized as follows:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Tax Services&nbsp;&#150; continue expanding our office network,
    improve our client service and satisfaction scores, focus on</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 18</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    advice that supports client growth and increased brand loyalty.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Mortgage Services&nbsp;&#150; continue growing origination
    volumes while lowering our cost of origination, distinguish our
    service quality, minimize risk and volatility in performance and
    optimize value from secondary markets.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Business Services&nbsp;&#150; continue expansion of our national
    accounting, tax and consulting business, add extended services
    to middle-market companies and enhance our client service
    culture.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Investment Services&nbsp;&#150; work to align the segment&#146;s
    cost structure with its revenues, attract and retain productive
    advisors, serve the broad consumer market through advisory
    relationships and integrate the Tax Services client base into
    this segment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>OVERVIEW</B>&nbsp;...
</DIV>

<DIV align="left" style="font-size: 10pt;">
A summary of our fiscal year 2005 results is as follows:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Revenues grew 4.1% over the prior year, primarily due to our Tax
    Services and Business Services segments, with this growth
    somewhat offset by a revenue decline at our Mortgage Services
    segment.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Diluted earnings per share declined 3.8% from fiscal year 2004
    to $3.77, primarily due to lower profitability in our Mortgage
    Services segment. Current year results included a non-operating
    gain of $0.06&nbsp;per diluted share for legal recoveries.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Tax Services fell short of its target client levels, although
    increases in our pricing and the complexity of returns prepared
    allowed the segment&#146;s revenue growth to continue. Segment
    revenues increased 7.6% over the prior year and segment pretax
    income increased $25.0&nbsp;million, or 3.9%.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Mortgage Services&#146; origination volumes of
    $31.0&nbsp;billion were at record levels, but margin compression
    drove gains on sales of mortgage assets to decline 10.5% to
    $822.1&nbsp;million.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Business Services revenues and pretax income increased 14.8% and
    54.7%, respectively, over the prior year. The increase was
    primarily due to higher demand for traditional accounting, tax
    and consulting services.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Investment Services reported a pretax loss of $75.4&nbsp;million
    compared to $75.6&nbsp;million in the prior year. Operating
    results for the fourth quarter of fiscal year 2005 showed marked
    improvement, which we hope will continue into the fiscal year
    2006.</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" nowrap><B>Consolidated Results of Operations</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">REVENUES&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,358,293</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,191,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,946,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,246,018</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,323,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,150,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>573,316</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>434,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>239,244</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,148</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="15" align="left" valign="top">
    <B><FONT color="#AADD6D">PRETAX INCOME
    (LOSS)&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>663,518</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>638,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>556,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>496,093</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>688,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>656,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,871</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,033</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(75,370</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(75,614</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(219,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(96,397</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,739</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(122,009</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CRITICAL ACCOUNTING POLICIES</B>&nbsp;...&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
We consider the policies discussed below to be critical to
securing an understanding of our financial statements, as they
require the use of significant judgment and estimation in order
to measure, at a specific point in time, matters that are
inherently uncertain. Specific risks for these critical
accounting policies are described in the following paragraphs.
For all of these policies, we caution that future events rarely
develop precisely as forecasted, and estimates routinely require
adjustment and may require material adjustment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">REVENUE
RECOGNITION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have many different revenue sources, each governed by specific
revenue recognition policies. Our revenue recognition policies
can be found in Item&nbsp;8, note&nbsp;1 to our consolidated
financial statements. Additional discussion of our recognition
of gains on sales of mortgage assets follows.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GAINS ON SALES OF MORTGAGE
ASSETS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
sell substantially all of the non-prime mortgage loans we
originate to the Trusts, which are qualifying special purpose
entities (&#147;QSPEs&#148;), with servicing rights generally
retained. Prime mortgage loans are sold in whole loan sales,
servicing released, to third-party buyers. Gains on sales of
mortgage assets are recognized when control of the assets is
surrendered (when loans
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 19</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
are sold to Trusts) and are based on the difference between cash
proceeds and the allocated cost of the assets sold.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We determine the allocated cost of assets sold based on the
relative fair values of cash proceeds, MSRs and the beneficial
interest in Trusts, which represents the ultimate expected
outcome from the Trusts&#146; disposition of the loans. The
relative fair value of the MSRs and the beneficial interest in
Trust is determined using discounted cash flow models, which
require various management assumptions, limited by the ultimate
expected outcome from the disposition of the loans by the Trusts
(see discussion below in &#147;Valuation of Residual
Interests&#148; and &#147;Valuation of Mortgage Servicing
Rights&#148;). The following is an example of a hypothetical
gain on sale calculation:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition cost of underlying mortgage loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair values:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net proceeds</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>990,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Beneficial interest in Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MSRs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,019,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computation of gain on sale:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net proceeds</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>990,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less allocated cost
    ($990,000/$1,019,000&nbsp;&#215;&nbsp;$1,000,000)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>971,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Recorded gain on sale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Recorded beneficial interest in Trusts<BR>
    ($20,000/$1,019,000&nbsp;&#215;&nbsp;$1,000,000)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Recorded value of MSRs
    ($9,000/$1,019,000&nbsp;&#215;&nbsp;$1,000,000)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Variations in the assumptions we use affect the estimated fair
values, which would affect the reported gains on sales. Gains on
sales of mortgage loans totaled $772.1&nbsp;million,
$915.6&nbsp;million and $792.1&nbsp;million for fiscal years
2005, 2004 and 2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">
See discussion in &#147;Off-Balance Sheet Financing
Arrangements&#148; related to the disposition of the loans by
the Trusts and subsequent securitization by the Company.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">VALUATION OF RESIDUAL
INTERESTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
use discounted cash flow models to determine the estimated fair
values of our residual interests. We develop our assumptions for
expected losses, prepayment speeds, discount rates and interest
rates based on historical experience and third-party market
sources. Variations in our assumptions could materially affect
the estimated fair values, which may require us to record
impairments or unrealized gains. In addition, variations will
also affect the amount of residual interest accretion recorded
on a monthly basis. Residual interests valued at
$205.9&nbsp;million and $211.0&nbsp;million were recorded as of
April&nbsp;30, 2005 and 2004, respectively. We recorded
$95.9&nbsp;million in net write-ups in other comprehensive
income and $12.2&nbsp;million in impairments in the income
statement related to our residual interests during fiscal year
2005 as actual performance differed from our assumptions. See
Item&nbsp;8, note&nbsp;1 to our consolidated financial
statements for our methodology used in valuing residual
interests. See Item&nbsp;8, note&nbsp;6 to our consolidated
financial statements for current assumptions and a sensitivity
analysis of those assumptions. See Item&nbsp;7A for sensitivity
analysis related to interest rates.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">VALUATION OF MORTGAGE SERVICING
RIGHTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;MSRs
are carried at the lower of cost or fair value. We use
discounted cash flow models to determine the estimated fair
values of our MSRs. Fair values take into account the historical
prepayment activity of the related loans and our estimates of
the remaining future cash flows to be generated through
servicing the underlying mortgage loans. Variations in our
assumptions could materially affect the estimated fair values,
which may require us to record impairments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Prepayment speeds are somewhat correlated with the movement of
market interest rates. As market interest rates decline there is
a corresponding increase in actual and expected borrower
prepayments as customers refinance existing mortgages under more
favorable interest rate terms. This in turn reduces the
anticipated cash flows associated with servicing resulting in a
reduction, or impairment, to the fair value of the capitalized
MSR. Prepayment rates are estimated based on historical
experience and third-party market sources. Many non-prime loans
have a prepayment penalty in place for the first two to three
years, which has the effect of making prepayment speeds more
predictable, regardless of market interest rate movements. If
actual prepayment rates prove to be higher than the estimate
made by management, impairment of the MSRs could occur.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
MSRs valued at $166.6&nbsp;million and $113.8&nbsp;million were
recorded as of April&nbsp;30, 2005 and 2004, respectively. See
Item&nbsp;8, note&nbsp;1 to our consolidated financial
statements for our methodology used in stratifying and valuing
MSRs. See Item&nbsp;8, note&nbsp;6 to our consolidated financial
statements for current assumptions and a sensitivity analysis of
those assumptions.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">VALUATION OF
GOODWILL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
goodwill impairment analysis is based on a discounted cash flow
approach and market comparables, when available. This analysis,
at the reporting unit level, requires significant management
judgment with respect to revenue and expense growth rates,
changes in working capital, and the selection and application of
an appropriate discount rate. Changes in the projections or
assumptions could materially affect fair values. The use of
different assumptions would increase or decrease estimated
discounted future operating cash flows and could increase or
decrease any impairment charge.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our goodwill balance was $1.0&nbsp;billion as of April&nbsp;30,
2005 and $993.5&nbsp;million as of April&nbsp;30, 2004. No
goodwill impairments were identified during fiscal years 2005 or
2004. In fiscal year 2003, a
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 20</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
goodwill impairment charge of $108.8&nbsp;million was recorded
in the Investment Services segment due to unsettled market
conditions. Also during 2003, our annual impairment test
resulted in an impairment of $13.5&nbsp;million for a reporting
unit within the Business Services segment. No other impairments
were identified.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
policy is to routinely assess the likelihood of any adverse
judgments or outcomes related to legal matters, as well as
ranges of probable losses. A determination of the amount of the
reserves required, if any, for these contingencies is made after
thoughtful analysis of each known issue and an analysis of
historical experience in accordance with Statement of Financial
Accounting Standards No.&nbsp;5, &#147;Accounting for
Contingencies,&#148; and related pronouncements. Therefore, we
have recorded reserves related to certain legal matters for
which it is probable that a loss has been incurred and the range
of such loss can be estimated. With respect to other matters, we
have concluded that a loss is only reasonably possible or remote
and, therefore, no liability is recorded.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">STOCK-BASED
COMPENSATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Stock-based
compensation expense is determined based on the grant-date fair
value and the number of equity instruments that vest. We use the
Black-Scholes model to calculate the fair value for stock
options and employee stock purchase plan (&#147;ESPP&#148;)
shares using the following assumptions: stock volatility,
expected life, risk-free interest rate and dividend yield. The
fair value of restricted shares is the stock price on the date
of the grant. We also estimate, based on historical data, the
percent of equity instruments expected to vest. Variations in
the assumptions used to calculate fair value could either
positively or negatively affect the recorded expense. Variations
between actual performance and the estimate of vesting could
result in timing adjustments recorded at the end of the vesting
period. Additionally, changes in accounting rules related to
stock-based compensation could result in changes to our
assumptions of fair value and expense recognition.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We began expensing all stock-based compensation awards under the
prospective transition method beginning on May&nbsp;1, 2003.
Therefore, our income statements do not fully reflect the
expense related to all of our stock options and restricted
shares outstanding. We recorded $44.1&nbsp;million,
$25.7&nbsp;million and $2.1&nbsp;million in stock-based
compensation expense during fiscal years 2005, 2004 and 2003,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INCOME
TAXES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
calculate our current and deferred tax provision based on
estimates and assumptions that could differ from the actual
results reflected in income tax returns filed during the
applicable calendar year. Adjustments based on filed returns are
recorded when identified. We file a consolidated federal tax
return on a calendar year basis, generally in the second fiscal
quarter of the subsequent year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We record a valuation allowance to reduce our deferred tax
assets to the amount that is more likely than not to be
realized. We have considered taxable income in carry-back
periods, historical and forecasted earnings, future taxable
income, the mix of earnings in the jurisdictions in which we
operate, and tax planning strategies in determining the need for
a valuation allowance against our deferred tax assets. In the
event we were to determine that we would not be able to realize
all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to
earnings in the period in which we make such determination.
Likewise, if we later determine that it is more likely than not
that the deferred tax assets would be realized, we would reverse
the applicable portion of the previously provided valuation
allowance.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The amount of income taxes we pay is subject to ongoing audits
by federal, state and foreign tax authorities, which may result
in proposed assessments. Our estimate for the potential outcome
for any uncertain tax issue is highly judgmental. We believe we
have adequately provided for any reasonably foreseeable outcome
related to these matters. However, our future results may
include favorable or unfavorable adjustments to our estimated
tax liabilities in the period the assessments are made or
resolved or when statutes of limitation on potential assessments
expire. As a result, our effective tax rate may fluctuate on a
quarterly basis. As discussed in Item&nbsp;9A, &#147;Controls
and Procedures,&#148; we reported a material weakness in our
internal controls over accounting for income taxes as of
April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">OTHER SIGNIFICANT ACCOUNTING
POLICIES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Other
significant accounting policies, not involving the same level of
measurement uncertainties as those discussed above, are
nevertheless important to an understanding of the financial
statements. These policies require difficult judgments on
complex matters that are often subject to multiple sources of
authoritative guidance. Certain of these matters are among
topics currently under reexamination by accounting standard
setters and regulators. Although no specific conclusions reached
by these standard setters appear likely to cause a material
change in our accounting policies, outcomes cannot be predicted
with confidence. Also see Item&nbsp;8, note&nbsp;1 to our
consolidated financial statements, which discusses accounting
policies we have selected when there are acceptable alternatives.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 21</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RESULTS OF OPERATIONS ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
Our business is divided into four reportable segments: Tax
Services, Mortgage Services, Business Services and Investment
Services.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TAX SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
This segment primarily consists of our income tax preparation
businesses&nbsp;&#150; retail, online and software. The
previously reported U.S.&nbsp;Tax Operations has been aggregated
with the International Tax Operations segment in the Tax
Services segment.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3" align="left" nowrap><B>Tax Services&nbsp;&#150; Operating Statistics</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s, except average fee)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Clients
    served&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    United States:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Company-owned offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>10,608</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,428</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>16,036</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Digital tax solutions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software
    <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,804</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online
    <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,213</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>19,053</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    International<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,333</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21,386</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT color="#AADD6D">Average fee per client
    served&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(5)&nbsp;</SUP></FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Company-owned offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>158.19</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>137.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>135.98</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>118.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>150.67</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>140.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>129.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">RALs&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(6)&nbsp;</SUP></FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Company-owned offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,667</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise offices</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,499</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Digital tax solutions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>32</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,200</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Company-owned and franchise data for fiscal years 2004 and 2003
    have not been restated for franchise acquisitions.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes TaxCut federal units sold.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes online completed and paid federal returns, and state
    returns only when no payment was made for a federal return.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP>&nbsp;</TD>
    <TD align="left">
    The end of the Canadian tax season was extended from
    April&nbsp;30 to May&nbsp;2, 2005. Clients served in our
    international operations in fiscal year 2005 includes
    approximately 47,500 returns in both company-owned and franchise
    offices which were accepted by the client on May&nbsp;1
    and&nbsp;2, 2005. The revenues related to these returns will be
    recognized in fiscal year 2006.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP>&nbsp;</TD>
    <TD align="left">
    Calculated as gross tax preparation and related fees divided by
    clients served (U.S.&nbsp;only).</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP>&nbsp;</TD>
    <TD align="left">
    Data is for tax season (January 1&nbsp;&#150;
    April&nbsp;30)&nbsp;only.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3" align="left" nowrap><B>Tax Services&nbsp;&#150; Financial Results</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax preparation and related fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,718,867</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,589,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,437,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Online tax services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>49,515</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>143,648</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,912,030</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,761,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,561,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Royalties</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>197,551</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,882</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>174,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    RAL participation fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>182,784</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    RAL waiver fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>138,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,419</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21,509</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,358,293</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,191,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,946,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>726,654</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>672,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>591,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Occupancy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>281,772</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>255,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>54,579</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Supplies</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>47,703</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Bad debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33,046</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>103,560</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,247,314</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,136,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,058,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of software sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>37,819</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>409,642</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>374,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>296,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,694,775</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,552,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,390,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pretax income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>663,518</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>638,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>556,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>FISCAL 2005 COMPARED TO FISCAL 2004</B>&nbsp;...&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
Tax Services&#146; revenues increased $167.1&nbsp;million, or
7.6%, compared to the prior year. Fiscal year 2005 was the first
year of a multi-year strategy to expand our retail distribution
network, to increase client growth by providing more convenient
access to our services and to react to increased competition in
the tax preparation market. In the U.S., we opened a net 1,252
new offices, 609 of which were part of the expansion of our
company-owned retail distribution network. This expansion
contributed incremental revenues of $24.9&nbsp;million and pretax
</DIV>

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    <TD align="center">
    <B><FONT color="#AADD6D"> 22</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
losses of $18.9&nbsp;million. Clients served in our
U.S.&nbsp;company-owned offices declined 0.2% from the prior
year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Tax preparation and related fees increased $129.4&nbsp;million,
or 8.1%. This increase is primarily due to an 8.1% increase in
the average fee per U.S.&nbsp;client served, resulting from
increases in our pricing and the complexity of returns prepared.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Online service revenues increased $4.6&nbsp;million, or 10.2%,
primarily as a result of a shift in the mix of services to those
with higher prices. Increased competition in the online market,
including national marketing campaigns and lower pricing by our
competitors, coupled with a 46% increase in returns prepared
through the FFA, limited our growth in online paid clients.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other service revenues increased $16.0&nbsp;million, or 12.6%,
primarily as a result of additional revenues associated with
RACs and Express IRAs.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Royalty revenues increased $12.7&nbsp;million, or 6.9%,
primarily due to a 6.3% increase in the average fee per client
served at our franchise offices.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Revenues earned during the current year in connection with RAL
participations increased $14.4&nbsp;million, or 8.6%, over the
prior year. This increase is primarily due to an increase in the
dollar amount of loans in which we purchased participation
interests, resulting from an increase in the fee charged by the
lender, an increase in our clients&#146; average refund size and
the maximum loan amount allowed by the lender.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
A total of 3.3&nbsp;million software units were sold during
fiscal year 2005, a decrease of 13.5% compared to the prior
year. Software units include TaxCut Federal, TaxCut State,
DeductionPro, WillPower and Legal Advisor. The decline in unit
sales was due to increased competition, but was offset by
pricing increases and a shift to our premium product lines,
which resulted in a 1.4% increase in revenues from software
sales.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services for fiscal year 2005 increased
$110.7&nbsp;million, or 9.7%, over the prior year. Compensation
and benefits increased $54.6&nbsp;million primarily due to
increased revenues and an increase in the number of tax
professionals and support staff needed in new office locations.
Stock-based compensation related to our seasonal associates also
increased $4.1&nbsp;million. Occupancy expenses increased
$26.3&nbsp;million, or 10.3%, as a result of an 11.4% increase
in U.S. company-owned offices under lease, which also drove
increases in depreciation and amortization and supply costs. Of
the total increase in occupancy expenses, $10.7&nbsp;million was
due to our real estate expansion. Other cost of services
increased $11.4&nbsp;million primarily due to additional
expenses associated with our POM guarantee and Express IRAs.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses increased
$35.5&nbsp;million over the prior year primarily due to
increased spending related to an $18.8&nbsp;million increase in
allocations from support departments and additional legal
expenses of $10.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income of $663.5&nbsp;million for fiscal year 2005
represents a 3.9% increase from the prior year. The
segment&#146;s operating margin declined 100&nbsp;basis points
to 28.1% in fiscal year 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2006
OUTLOOK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;In
fiscal year 2006, we plan to continue our office expansion
initiative by adding between 500 and 700 more offices across our
company-owned and franchise network. We believe by investing in
our office network, we will attract potential clients who are
primarily motivated by convenience. Although we expect the
additional tax offices to result in incremental clients and
revenues during fiscal year 2006, due to the cost of expansion
we expect incremental pretax losses from these newly added
offices. We expect the performance of offices added during
fiscal year 2005 to improve in the upcoming year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also plan to be more aggressive in our digital tax solutions
marketing efforts to better compete in the market. We believe
our multi-channel strategy not only allows clients to choose how
they want to be served, but also allows us to appeal to a
different client base than we do through our offices.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We expect overall revenue growth in this segment to be less than
ten percent in the upcoming year, and we will continue to focus
on cost containment to improve the segment&#146;s operating
margin.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2004 COMPARED TO FISCAL
2003</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Tax
Services&#146; revenues increased $244.4&nbsp;million, or 12.6%,
for fiscal year 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Tax preparation and related fees increased $151.6&nbsp;million,
or 10.5%, compared to fiscal year 2003. This increase is due to
a 6.7% increase in the average fee per client served in
U.S.&nbsp;offices, coupled with a 5.2% increase in clients
served. The average fee per client served increased due to
increases in our pricing and the complexity of returns prepared.
Clients served in company-owned offices increased to
10.6&nbsp;million as a result of the acquisition of businesses
in former major franchise territories. Excluding the impact of
our acquisitions of former major franchises, clients served
declined 2.5%.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Online tax preparation revenues increased $19.0&nbsp;million, or
73.5%, as a result of an increase in the average price and an
increase in clients served.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other service revenues for fiscal year 2004 increased
$29.8&nbsp;million, or 30.5%, primarily due to a change in
accounting principle relating to our POM guarantee.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The average fee per client at our franchise offices increased
8.4%, while clients served declined 15.9%. The decline is due to
the former major franchise territories being operated as
company-owned for the majority of fiscal year 2004. This,
coupled with the re-franchising of certain former major
franchise territories at higher royalty rates, resulted in a
5.9% increase in royalty revenue.
</DIV>

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    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 23</FONT></B></TD>
</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Revenues earned during fiscal year 2004 in connection with RAL
participations totaled $168.4&nbsp;million. These revenues are
approximately $30.1&nbsp;million higher than waiver fees earned
during fiscal year 2003. See discussion of the waiver below. Our
RAL participation revenues benefited from the new company-owned
operations in former major franchise territories. We participate
in RALs at a rate of nearly 50% for company-owned offices
compared to 25% in major franchise offices. This increased
participation rate caused our revenues to increase, although the
number of RALs declined.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2003, we entered into an agreement with
Household, whereby we waived our right to purchase any
participation interests in and receive license fees for RALs
during the period January 1 through April&nbsp;30, 2003. In
consideration for waiving these rights we received a series of
payments from Household in fiscal year 2003, subject to certain
adjustments in fiscal year 2004 based on delinquency rates. See
discussion in Item&nbsp;1, &#147;RAL Participations and 2003 Tax
Season Waiver.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
A total of 3.8&nbsp;million software units were sold during
fiscal year 2004, an increase of 11.2% compared to
3.4&nbsp;million units in 2003. Revenues from software sales in
fiscal year 2004 increased 11.5% as a result of the higher sales
volume.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services for fiscal year 2004 increased
$78.2&nbsp;million, or 7.4%, from 2003. This increase was
partially attributable to the operation of former major
franchise territories as company-owned. Compensation and
benefits increased $80.5&nbsp;million as a result of the former
major franchise acquisitions, increased field wages during the
later part of the tax season and $13.7&nbsp;million in expenses
for stock options awarded to seasonal tax associates. Occupancy
and equipment costs increased $30.5&nbsp;million due primarily
to a 5.7% increase in the average rent and a 3.4% increase in
the number of U.S. offices under lease. Depreciation and
amortization increased as a result of additional equipment
purchased for new office locations opened during the period.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses increased
$77.3&nbsp;million over 2003 due to $33.3&nbsp;million in bad
debt expense associated with RAL participations, which was not
incurred in the prior year due to the waiver agreement.
Intangible amortization increased $9.0&nbsp;million from the
acquisition of assets of former major franchisees. Marketing
costs increased $20.7&nbsp;million as a result of additional
brand advertising campaigns. Allocated information technology
costs increased $13.9&nbsp;million as a result of additional
technology projects. These increases were partially offset by a
$62.4&nbsp;million decrease in legal expenses, which is
primarily a result of the Texas RAL litigation settlement and
other cases in the prior year. See discussion in &#147;RAL
Litigation&#148; below.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income for fiscal year 2004 increased $81.8&nbsp;million,
or 14.7%, over 2003. The segment&#146;s operating margin
improved fifty basis points to 29.1% in fiscal year 2004.
Excluding the 2003 RAL litigation reserve, pretax income
increased 6.7% and our operating margin declined 160&nbsp;basis
points.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">RAL
LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;In
fiscal year 2003, we announced a settlement had been reached in
the cases <I>Ronnie and Nancy Haese, et&nbsp;al.&nbsp;v.
H&#38;R&nbsp;Block, Inc., et&nbsp;al.</I>, Case
No.&nbsp;CV96-4213, District Court of Kleberg County, Texas
(Haese&nbsp;I) and <I>Ronnie and Nancy Haese,
et&nbsp;al.&nbsp;v. H&#38;R Block, Inc.,&nbsp;et al</I>., Case
No.&nbsp;CV-99-314-D, District Court of Kleberg County, Texas
(Haese II), filed originally as one action on July&nbsp;30,
1996. As a result of that settlement, we recorded a liability
and pretax expense of $43.5&nbsp;million during fiscal year
2003. This represented our best estimate of our share of the
settlement, plaintiff class legal fees and expenses, tax
products and associated mailing expenses. Our share of the
settlement is less than the total amount awarded due to amounts
recoverable from a co-defendant in the case.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have been named as a defendant in a number of lawsuits
alleging that we engaged in wrongdoing with respect to the RAL
program. We believe we have strong defenses to the various RAL
Cases and will vigorously defend our position. Nevertheless, the
amounts claimed by the plaintiffs are, in some instances, very
substantial, and there can be no assurances as to the ultimate
outcome of the pending RAL Cases, or as to the impact of the RAL
Cases on our financial statements. See Item&nbsp;3, &#147;Legal
Proceedings,&#148; for additional information.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
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<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 24</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MORTGAGE SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
This segment is primarily engaged in the origination of
non-prime mortgage loans through an independent broker network,
the origination of non-prime and prime mortgage loans through a
retail office network, the sale and securitization of mortgage
loans and residual interests, and the servicing of non-prime
loans.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3" align="left" nowrap><B>Mortgage Services&nbsp;&#150; Operating Statistics</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Volume of loans
    originated&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Wholesale (non-prime)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>26,977,810</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,150,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,659,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retail: Non-prime</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,005,168</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,846,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,220,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prime</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,018,746</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,258,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,697,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>31,001,724</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,256,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,577,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="7" align="left" valign="top">
    <B><FONT color="#AADD6D">Loan Characteristics&nbsp;...</FONT></B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average FICO
    score&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average interest rate for borrowers
    (&#147;WAC&#148;)&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7.36%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.39%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.15%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average
    loan-to-value&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>78.9%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78.1%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Percentage of first mortgage loans owner-occupied</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>92.6%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93.0%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Percentage with prepayment penalty</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>70.8%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79.9%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Percentage of fixed-rate mortgages</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>22.1%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24.4%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Percentage of adjustable-rate mortgages</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>77.9%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Origination margin<BR>
    (% of origination
    volume)&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)&nbsp;</SUP>...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan sale premium</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.77%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.21%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.87%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion on beneficial interest in Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.63%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.72%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.65%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain (loss) on derivatives</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.15%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.05%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.02%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan sale repurchase reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(0.13%</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.20%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.13%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    MSR gain on sale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.44%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.36%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.36%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.86%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.04%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.73%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="17">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(0.54%</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.50%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.36%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct origination expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(0.68%</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.65%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.62%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net gain on sale&nbsp;&#150; gross
    margin&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(3)&nbsp;</SUP>...</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.64%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.89%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.75%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>0.03%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.01%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.01%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other cost of origination</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1.55%</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.68%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.91%</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net margin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.12%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.22%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.83%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of origination</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.23%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.33%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.53%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of origination and acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.77%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.83%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.89%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Loan delivery&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>30,975,523</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,234,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,225,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Execution
    price:&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(4)&nbsp;</SUP>...</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loans originated and sold</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.01%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.09%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.63%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loans acquired and sold</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.18%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.01%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.09%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.46%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Represents non-prime production.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    As restated. See &#147;Reconciliation of Non-GAAP Financial
    Information&#148; at the end of Item&nbsp;7.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP>&nbsp;</TD>
    <TD align="left">
    Defined as gain on sale of mortgage loans (including gain or
    loss on derivatives, mortgage servicing rights and net of direct
    origination and acquisition expenses) divided by origination
    volume.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP>&nbsp;</TD>
    <TD align="left">
    Defined as total premium received divided by total balance of
    loans delivered to third-party investors or securitization
    vehicles (excluding mortgage servicing rights and the effect of
    loan origination expenses).</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 25</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3" align="left" nowrap><B>Mortgage Services&nbsp;&#150; Financial Results</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Components of gains on sales:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain on mortgage loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>772,061</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>915,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>792,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain (loss) on derivatives</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>46,853</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,957</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,141</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain on sales of residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,396</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(12,235</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,063</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(54,111</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>822,075</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>918,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>827,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion-residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>137,610</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>186,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>11,850</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>149,460</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>191,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>151,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan-servicing revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>273,056</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>211,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,427</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,246,018</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,323,709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,150,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>221,300</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>141,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of non-service revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>218,544</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>190,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Occupancy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33,155</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>72,803</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>324,502</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>287,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>204,123</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>154,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>108,397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>749,925</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>635,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>493,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pretax income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>496,093</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>688,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>656,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2005 COMPARED TO FISCAL
2004</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Mortgage
Services&#146; revenues decreased $77.7&nbsp;million, or 5.9%,
compared to the prior year. Revenues decreased primarily as a
result of a decline in gains on sales of mortgage loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following table summarizes the key drivers of gains on sales
of mortgage loans:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Application process:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total number of applications</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>335,203</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>269,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of sales associates
    <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,526</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Closing ratio
    <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>58.3%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57.7%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Originations:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total number of originations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>195,392</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>155,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    WAC</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7.36%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.39%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average loan size (all loans)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>159</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total originations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>31,001,724</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,256,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-prime origination ratio</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>96.7%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94.6%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct origination and acquisition expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>378,674</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>278,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue (loan value):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net gain on sale&nbsp;&#150; gross margin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.64%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.89%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes all direct sales and back office sales support
    associates.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    Percentage of loans funded divided by total applications in the
    period.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Although origination volumes increased 33.3% over the prior
year, gains on sales of mortgage loans declined
$143.6&nbsp;million as a result of increased price competition
and poorer execution in the secondary market. As a result, our
net margin declined to 1.12% from 2.22% in the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The average market interest rate for a 2-year swap increased to
3.32% in fiscal year 2005 from 1.97% in 2004, while our WAC
decreased to 7.36% from 7.39% for the same periods. Because our
WAC did not increase as quickly as market rates, our gross
margin declined 125&nbsp;basis points from last year. To
mitigate the risk of short-term changes in market interest
rates, we use interest rate swaps, interest rate caps and
forward loan sale commitments. During the current year, we
recorded $46.9&nbsp;million in net gains, compared to a net loss
of $12.0&nbsp;million in the prior year, related to derivative
instruments. See Item&nbsp;8, note&nbsp;9 to the consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
For the year ended April&nbsp;30, 2004, we reclassified
$167.7&nbsp;million from interest income to gains on sales of
mortgage assets representing excess cash received from our
beneficial interest in Trusts. The beneficial interest in Trusts
is reported at fair value at each balance sheet date. Changes in
its fair value are included in current period earnings. The
excess cash received together with the and mark-to-market
adjustment for each period have been classified as gain on sale
of mortgage loans. This change had no impact on our net income
as previously reported.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In fiscal year 2005, we completed a sale of residual interests
and recorded a gain of $15.4&nbsp;million. This sale accelerated
cash flows from these residual interests, effectively realizing
previously recorded unrealized gains included in other
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 26</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
comprehensive income. We recorded a gain of $40.7&nbsp;million
in the prior year on similar transactions.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Impairments of residual interests in securitizations of
$12.2&nbsp;million were recognized during the year compared with
$26.1&nbsp;million in the prior year. The prior year impairments
were due primarily to loan performance of older residuals and
changes in assumptions to more closely align with the economic
and interest rate environment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Total accretion of residual interests decreased
$48.9&nbsp;million from the prior year. This decrease is
primarily due to the sale of previously securitized residual
interests during fiscal year 2004, which eliminated future
accretion on those residual interests.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2005, our residual interests continued to
perform better than expected compared to internal valuation
models. As a result of this performance, our residuals have
produced, or are expected to produce, more cash proceeds than
projected in previous valuation models. We recorded favorable
pretax mark-to-market adjustments, which increased the fair
value of our residual interests $154.3&nbsp;million during the
year. These adjustments were recorded, net of write-downs of
$58.3&nbsp;million and deferred taxes of $36.6&nbsp;million, in
other comprehensive income and will be accreted into income
throughout the remaining life of the residual interests. Future
changes in interest rates, actual loan pool performance or other
assumptions could cause additional favorable or unfavorable
adjustments to the fair value of the residual interests and
could cause changes to the accretion of these residual interests
in future periods. Additionally, sales of residual interests
results in decreases to accretion income in future periods.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following table summarizes the key drivers of loan-servicing
revenues:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average servicing portfolio:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    With related MSRs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>41,021,448</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>32,039,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Without related MSRs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,838,769</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,481,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>54,860,217</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>38,520,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of loans serviced</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>435,290</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>324,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average delinquency rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4.85%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.04%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average FICO score</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>610</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>596</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Value of MSRs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>113,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Loan-servicing revenues increased $61.3&nbsp;million, or 29.0%,
over the prior year. The increase reflects a higher average
loan-servicing portfolio. The average servicing portfolio for
fiscal year 2005 increased 42.4%.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $28.3&nbsp;million, or 14.7%, as a
result of a higher average servicing portfolio, particularly
loans with MSRs, which also resulted in an increase in MSR
amortization.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of non-service revenues increased $36.7&nbsp;million, or
12.8%, over the prior year. Compensation and benefits increased
$28.0&nbsp;million as a result of a 25.4% increase in the number
of employees, reflecting resources needed to support higher loan
production volumes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses increased
$49.7&nbsp;million, or 32.2%, due to $12.1&nbsp;million in
increased retail marketing expenses and $7.4&nbsp;million in
additional consulting expenses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income decreased $192.4&nbsp;million, or 27.9%, for
fiscal year 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2006
OUTLOOK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
We believe we can continue to grow our origination volumes in
fiscal year 2006. Lowering our cost of origination will be a key
priority for the upcoming year and we have begun to implement
new technologies to enhance the underwriting and origination
processes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Based upon these assumptions, we expect loan origination growth
to exceed 20% at net margins in the range of .90% to 1.15% in
fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Based on these assumptions, we expect loan origination growth of
at least 15% at net margins in the range of 1.00% to 1.25% in
fiscal year 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2004 COMPARED TO FISCAL
2003</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
Mortgage Services&#146; revenues increased $173.6&nbsp;million,
or 15.1%, compared to fiscal year 2003. This increase was
primarily a result of increased production volumes, higher
servicing income and accretion.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Gains on sales of mortgage loans increased $123.6&nbsp;million,
or 15.6%, for the year ended April&nbsp;30, 2004. The increase
over the prior year is a result of a significant increase in
loan origination volume, an increase in the average loan size
and the closing ratio, partially offset by a decrease in our
gross margin and increased loan sale repurchase reserves. During
2004, we originated $23.3&nbsp;billion in mortgage loans
compared to $16.6&nbsp;billion in 2003, an increase of 40.3%.
Our gross margin decreased primarily due to lower WACs. The loan
sale repurchase reserves, which are netted against gains on
sales, increased $25.5&nbsp;million over 2003. This increase is
primarily a result of an increase in loan sales coupled with the
increase in whole loan sales compared to securitizations, for
which higher reserves are provided at the time of sale for
estimated repurchases. As previously discussed, we reclassified
$103.3&nbsp;million from interest income to gains on sales for
fiscal year 2003.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 27</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In November 2002, we completed the sale of previously
securitized residual interests and recorded a gain of
$93.3&nbsp;million. Two smaller transactions were completed in
fiscal year 2004, which resulted in gains of $40.7&nbsp;million
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Impairments of residual interests in securitizations of
$26.1&nbsp;million were recognized during 2004 compared with
$54.1&nbsp;million in 2003. The impairments were due primarily
to loan performance of older residuals and changes in
assumptions to more closely align with the current economic and
interest rate environment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Total accretion of residual interests increased
$40.1&nbsp;million over 2003. This improvement is the result of
write-ups in the related asset values in fiscal years 2003 and
2004. Increases in fair value are realized in income through
accretion over the remaining expected life of the residual
interest.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We recorded favorable pretax mark-to-market adjustments, which
increased the fair value of our residual interests
$199.7&nbsp;million during 2004. These adjustments were
recorded, net of write-downs of $32.6&nbsp;million and deferred
taxes of $63.8&nbsp;million, in other comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Loan-servicing revenues increased $43.4&nbsp;million, or 25.8%,
in fiscal year 2004. The increase reflects a higher average
loan-servicing portfolio, which was partially offset by the
reduction of certain of our ancillary fees previously charged to
borrowers. The average servicing portfolio for fiscal year 2004
increased 38.9%.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $51.6&nbsp;million, or 36.5%, as a
result of a higher average servicing portfolio and the
acceleration of amortization of certain MSRs.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of non-service revenues increased $43.8&nbsp;million, or
18.0%, over the prior year. Compensation and benefits increased
$43.6&nbsp;million as a result of a 22.9% increase in the number
of employees, reflecting resources needed to support higher loan
production volumes. Occupancy expenses increased due to nine
additional branch offices opened since October 2002.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses increased
$46.0&nbsp;million, primarily due to $10.4&nbsp;million in
increased marketing expenses for retail mortgage direct mail
advertising, $13.5&nbsp;million in increased allocated corporate
and shared costs and $7.2&nbsp;million in increased consulting
expenses. Allocated costs increased due to higher insurance
costs and the expensing of stock-based compensation.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income increased $32.2&nbsp;million, or 4.9%, for fiscal
year 2004.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 28</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>BUSINESS SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
This segment offers middle-market companies accounting, tax and
consulting services, wealth management, retirement resources,
payroll services, corporate finance and financial process
outsourcing.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="16" align="left" nowrap><B>Business Services&nbsp;&#150; Operating Statistics</B></TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Accounting, tax and
    consulting&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chargeable hours (000s)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,898</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Chargeable hours per person</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,430</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net collected rate per hour</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>133</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average margin per person</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>112,573</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>102,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>97,117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="2" align="left" nowrap><B>Business Services&nbsp;&#150; Financial Results</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>




<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting, tax and consulting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>412,473</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>353,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>337,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital markets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>67,922</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,629</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payroll, benefits and retirement services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,331</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>31,170</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>538,896</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>468,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>402,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>34,420</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>573,316</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>434,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>310,950</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>256,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>233,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Occupancy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>24,699</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>36,672</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>372,321</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>310,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>286,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>171,124</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>149,976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>543,445</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>479,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pretax income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>29,871</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(16,033</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2005 COMPARED TO FISCAL
2004</FONT></B><FONT color="#AADD6D">&nbsp;...
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Business Services&#146; revenues for fiscal year 2005 increased
$74.1&nbsp;million, or 14.8%, from the prior year. This increase
was primarily due to a $58.7&nbsp;million increase in
accounting, tax and consulting revenues resulting from an 11.5%
increase in chargeable hours and a 7.3% increase in the net
collected rate per hour. The increase in chargeable hours is
primarily due to strong demand for our tax and accounting
services as well as our consulting and risk management services.
This demand stems from the current business environment and the
emphasis placed on the accounting industry.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Capital markets revenues declined $5.9&nbsp;million as a result
of an 11.2% decrease in the number of business valuation
projects. Payroll, benefits and retirement services revenues
increased as a result of three acquisitions completed during the
last half of the current year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other service revenues increased $11.8&nbsp;million due to the
acquisition of our financial process outsourcing business in the
second quarter of last year, coupled with overall growth in this
business. Increases in reimbursable expenses and contractor
revenues also contributed to higher revenues.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $62.1&nbsp;million, or 20.0%, for
fiscal year 2005 compared to the prior year. Compensation and
benefits related to our services increased $54.3&nbsp;million,
primarily as a result of increases in the number of personnel
and the average wage per employee. The increase in the average
wage is being driven by marketplace competition for professional
staff. Higher expenses are also attributable to investments we
are making in early-stage businesses within this segment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income for the year ended April&nbsp;30, 2005 was
$29.9&nbsp;million compared to $19.3&nbsp;million in fiscal year
2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2006
OUTLOOK</FONT></B><FONT color="#AADD6D">&nbsp;...
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Our focus for fiscal year 2006 is growing the business within
our current markets by expanding our services to existing
clients. We will continue to support our national business
development strategy and we expect the demand for risk
management services and financial process outsourcing to
continue. We also believe the demand and competition for
qualified professional staff will continue.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We expect this segment&#146;s pretax income for fiscal year 2006
to increase by approximately 30%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2004 COMPARED TO FISCAL
2003</FONT></B><FONT color="#AADD6D">&nbsp;...
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Business Services&#146; revenues for fiscal year 2004 improved
$65.1&nbsp;million, or 15.0%, over the prior year. This increase
was primarily due to a $38.2&nbsp;million increase in capital
markets revenue resulting from a 38.3% increase in the number of
business valuation projects. Revenues in accounting, tax and
consulting increased $15.8&nbsp;million over the prior year as a
result of newly acquired tax businesses and increased
productivity. The acquisition of Tax Services&#146; former major
franchises allowed us to acquire certain tax businesses
associated with the original M&#38;P acquisition. We were
previously unable to acquire and operate these businesses in
direct competition with major franchise territories. The
acquired tax businesses contributed $13.0&nbsp;million in
revenues in 2004. The remainder of the increase
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 29</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
was driven primarily by a 3.3% increase in the net collected
rate per hour.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $23.5&nbsp;million, or 8.2%, over the
prior year. Compensation and benefits increased
$23.3&nbsp;million, primarily as a result of increased activity
in the capital markets business and increased costs in our
accounting, tax and consulting business. A goodwill impairment
charge of $13.5&nbsp;million was recorded in the prior year. No
such impairment was recorded in fiscal year&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pretax income for the year ended April&nbsp;30, 2004 was
$19.3&nbsp;million compared to a loss of $16.0&nbsp;million in
fiscal year&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INVESTMENT SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
This segment is primarily engaged in offering advice-based
investment services. Our integration of investment advice and
new service offerings has allowed us to shift our focus from a
transaction-based client relationship to a more
advice-based&nbsp;focus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="17" align="left" nowrap><B>Investment Services&nbsp;&#150;&nbsp;Operating Statistics</B></TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer
    trades&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>885,796</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,004,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>860,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer daily average trades</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,529</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average revenue per
    trade&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>123.33</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>119.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer
    accounts:&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Traditional brokerage</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>431,749</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>463,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>501,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Express IRAs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>380,539</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>366,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>216,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>812,288</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>829,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>717,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ending balance of assets under administration (billions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>27.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average assets per traditional brokerage account</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>63,755</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>57,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>43,991</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average margin balances (millions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>597</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>545</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average customer payables balances (millions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>975</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Number of advisors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Included in the numbers above are the following relating to
    fee-based accounts:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7,668</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average revenue per account</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,301</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,442</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Assets under administration (millions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,975</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Average assets per active account</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>260,238</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>214,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>168,522</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes only trades on which revenues are earned (&#147;revenue
    trades&#148;). Revenues are earned on both transactional and
    annuitized&nbsp;trades.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    Calculated as total trade revenues divided by revenue trades.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes only accounts with a positive balance.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3" align="left" nowrap><B>Investment Services&nbsp;&#150; Financial Results</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transactional revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>88,516</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>99,559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>91,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Annuitized revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>77,386</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Production revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>165,902</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,206</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,311</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>195,108</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>164,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Margin interest revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43,698</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(3,114</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,358</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,830</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net interest revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>40,584</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>438</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(66</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(911</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total
    revenues&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>236,130</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>228,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>116,552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>108,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Occupancy</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>22,178</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,571</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>19,555</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,091</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,604</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>158,285</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>154,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>108,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>153,215</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>149,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>311,500</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>303,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>415,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pretax loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(75,370</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(75,614</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(219,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Total revenues, less interest expense</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2005 COMPARED TO FISCAL
2004&nbsp;...</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Investment Services&#146; revenues, net of interest expense, for
fiscal year 2005 increased $8.0&nbsp;million, or 3.5%. The
increase is primarily due to higher margin interest&nbsp;revenue.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Production revenue increased $5.4&nbsp;million, or 3.4% over the
prior year. Transactional revenue, which is based on individual
securities transactions, decreased $11.0&nbsp;million, or 11.1%,
from the prior year due primarily to an 18.7% decline in
transactional trading volume. This decline was partially offset
by an increase in the average revenue per trade. Annuitized
revenue, which consists of sales of mutual funds, insurance,
fee-based products and unit investment trusts, increased
$16.4&nbsp;million, or 27.0%, due to increased sales of
annuities, mutual funds and our fee-based wealth management
accounts. Annuitized revenues represent
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 30</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
46.6% of total production revenues for fiscal year 2005,
compared to 38.0% in the prior year. Advisor productivity
averaged approximately $166,000 in the current year, essentially
flat compared to the prior&nbsp;year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other service revenue declined $6.4&nbsp;million, or 18.0%, from
the prior year due to fewer fixed income underwriting offerings
and Express IRA revenues now being recorded as part of
Tax&nbsp;Services.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Margin interest revenue increased $10.3&nbsp;million, or 30.8%,
from the prior year, which is primarily a result of higher
interest rates earned, coupled with a 9.5% increase in average
margin balances. Margin balances have increased from an average
of $545.0&nbsp;million in fiscal year 2004 to
$597.0&nbsp;million in the current&nbsp;year.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $3.7&nbsp;million, or 2.4%, primarily
due to $7.6&nbsp;million of additional compensation and benefits
resulting from a higher average commission rate than the prior
year and other financial incentives for attracting new advisors.
This increase was partially offset by declines in depreciation
and other&nbsp;expenses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses increased
$4.1&nbsp;million, or 2.8%, over the prior year primarily as the
result of $6.8&nbsp;million in additional legal expenses,
partially offset by gains of $4.6&nbsp;million on the
disposition of certain&nbsp;assets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The pretax loss for Investment Services for fiscal year 2005 was
$75.4&nbsp;million compared to a loss of $75.6&nbsp;million
last&nbsp;year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2006 OUTLOOK&nbsp;...</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We believe the key to this segment&#146;s profitability in the
near-term is aligning the segment&#146;s cost structure with its
revenue. Our focus in the upcoming fiscal year will be on
reducing costs and attracting productive advisors. In the fourth
quarter of fiscal year 2005, we implemented a series of actions,
which are not production dependent, to reduce costs and enhance
performance. We have also implemented strict advisor
production&nbsp;standards.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Although we still expect to report an operating loss for fiscal
year 2006, we anticipate that loss will be approximately $25 to
$35&nbsp;million less than the loss recorded in&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2004 COMPARED TO FISCAL
2003&nbsp;...</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Investment Services&#146; revenues, net of interest expense, for
fiscal year 2004 increased $32.1&nbsp;million, or 16.4%, over
fiscal year 2003. The improvement is primarily due to the
increase in annuitized&nbsp;revenues.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Production revenue increased $30.4&nbsp;million, or 23.4% over
fiscal year 2003. Transactional revenue increased
$8.0&nbsp;million, or 8.7%, from 2003 due to an increase in
transactional trading activity, partially offset by a slight
decline in average revenue per trade. Annuitized revenues
increased $22.4&nbsp;million, or 58.3%, due to increased sales
of annuities and mutual funds and an increase in advisor
productivity. Productivity averaged approximately
$166,000&nbsp;per advisor in fiscal year 2004 compared to
$122,000 in&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Margin interest revenue declined $3.9&nbsp;million, or 10.4%,
from 2003 primarily as a result of a 5.5% decline in average
margin balances coupled with lower interest rates. Margin
balances declined from an average of $577.0&nbsp;million in
fiscal year 2003 to $545.0&nbsp;million in 2004. Accordingly,
interest expense for fiscal year 2004 declined
$3.5&nbsp;million, or 71.9%, from fiscal year&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cost of services increased $15.2&nbsp;million over 2003
primarily due to a $19.5&nbsp;million increase in compensation
and benefits, resulting from an increase in customer trading and
higher average&nbsp;commissions.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
A goodwill impairment charge of $108.8&nbsp;million was recorded
in fiscal year 2003 due to unsettled market conditions. This
charge includes an additional impairment of $84.8&nbsp;million
as a result of the restatement of previously issued
financial&nbsp;statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Selling, general and administrative expenses decreased
$18.1&nbsp;million primarily as a result of a reduction in
consulting and legal&nbsp;expenses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The pretax loss for Investment Services for fiscal year 2004 was
$75.6&nbsp;million compared to a loss of $219.4&nbsp;million
in&nbsp;2003.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 31</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CORPORATE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
This segment consists primarily of corporate support
departments, which provide services to our operating segments.
These support departments consist of marketing, information
technology, facilities, human resources, executive, legal,
finance, government relations and corporate communications.
Support department costs are generally allocated to our
operating segments. Our captive insurance and franchise
financing subsidiaries are also included within this segment, as
was our small business initiatives subsidiary in fiscal years
2004 and 2003.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="2" align="left" nowrap><B>Corporate&nbsp;&#150; Financial Results</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>13,592</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Eliminations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,444</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,218</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,099</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,148</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>72,701</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>51,262</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>123,963</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>119,776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Support departments:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Marketing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>117,303</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>88,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Information technology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>107,306</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Finance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>34,498</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>107,562</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>366,669</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>333,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>277,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allocation of support departments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(366,742</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(336,639</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,677</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>24,345</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pretax loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(96,397</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(107,739</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(122,009</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2005 COMPARED TO FISCAL
2004</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
Corporate expenses increased $4.2&nbsp;million primarily due to
higher interest expense, resulting from higher interest rates
and higher average debt balances.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Marketing department expenses increased $6.8&nbsp;million, or
6.1%, primarily due to additional marketing efforts in the
current year. Other support department expenses increased
$29.0&nbsp;million, primarily due to $15.1&nbsp;million of
additional stock-based compensation expenses, increases in the
cost of employee insurance and supplies.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other income increased $19.8&nbsp;million primarily as a result
of $17.3&nbsp;million in legal recoveries.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The pretax loss was $96.4&nbsp;million, compared with last
year&#146;s loss of $107.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our effective income tax rate for fiscal year 2005 decreased to
37.5% compared to 38.5% in fiscal year 2004. The decrease is due
to tax benefits realized on net operating loss carryforwards and
their related benefits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FISCAL 2004 COMPARED TO FISCAL
2003</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt;">
Corporate revenues increased $5.0&nbsp;million primarily as a
result of operating capital gains of $1.0&nbsp;million in 2004
compared to a $2.0&nbsp;million write-off of investments at our
captive insurance subsidiary and improved results from our small
business subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Corporate expenses declined $10.7&nbsp;million, or 8.2%, due
primarily to lower interest expense. Interest expense declined
as a result of lower financing costs and a scheduled debt
payment of $45.1&nbsp;million in August 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Marketing department expenses increased $21.7&nbsp;million, or
24.4%, primarily as a result of marketing initiatives for Tax
Services directed toward our brand repositioning and raising
consumer awareness of our advice offerings. Information
technology department expenses increased $17.7&nbsp;million, or
19.0%, primarily due to additional resources needed to support
additional projects on behalf of the operating segments and
other support departments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The pretax loss was $107.7&nbsp;million, compared with a loss of
$122.0&nbsp;million in fiscal year 2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our effective income tax rate for fiscal year 2004 decreased to
38.5% compared to 44.2% in fiscal year 2003, primarily as a
result of non-deductible goodwill impairment charges recorded in
the prior year.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">FINANCIAL
CONDITION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CAPITAL RESOURCES&nbsp;&#38; LIQUIDITY BY SEGMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Our sources of capital include cash from operations, issuances
of common stock and debt. We use capital primarily to fund
working capital requirements, pay dividends, repurchase shares
of our common stock and acquire businesses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CASH FROM
OPERATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Operating
cash flows totaled $513.8&nbsp;million, $852.5&nbsp;million and
$689.7&nbsp;million in fiscal years 2005, 2004 and 2003,
respectively. Operating cash flows in fiscal year 2005 decreased
from fiscal year 2004 due to decreased cash flows from both
Mortgage Services and Tax Services and increased income tax
payments. Tax Services and Mortgage Services contributed
$529.0&nbsp;million and $98.3&nbsp;million, respectively, to
cash from operations in the current year. Income
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 32</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
tax payments totaled $437.4&nbsp;million this year, compared to
$331.6&nbsp;million in fiscal year 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">ISSUANCES OF COMMON
STOCK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
issue shares of our common stock in accordance with our
stock-based compensation plans out of our treasury shares.
Proceeds from the issuance of common stock totaled
$136.1&nbsp;million, $120.0&nbsp;million and $126.3&nbsp;million
in fiscal years 2005, 2004 and 2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">DEBT</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;In
August 2004 we filed an additional shelf registration statement
with the SEC for up to $1.0&nbsp;billion in debt securities. On
October&nbsp;26, 2004, we issued $400.0&nbsp;million of
5.125%&nbsp;Senior Notes under our shelf registration
statements. The proceeds from the notes were used to repay our
$250.0&nbsp;million in
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes, which were due on November&nbsp;1, 2004. The remaining
proceeds were used for working capital, capital expenditures,
repayment of other debt and other general corporate purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">DIVIDENDS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have consistently paid quarterly dividends. Dividends paid
totaled $143.0&nbsp;million, $138.4&nbsp;million and
$125.9&nbsp;million in fiscal years 2005, 2004 and 2003,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">SHARE
REPURCHASES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;On
June&nbsp;9, 2004, our Board of Directors approved an
authorization to repurchase an additional 15&nbsp;million
shares. This authorization is in addition to the authorization
of 20&nbsp;million shares on June&nbsp;11, 2003. During fiscal
year 2005, we repurchased 11.2&nbsp;million shares pursuant to
these authorizations at an aggregate price of
$527.5&nbsp;million or an average price of $46.98&nbsp;per
share. There were 15.0&nbsp;million shares remaining under the
2004 authorization and 0.1&nbsp;million shares remaining under
the 2003 authorization at the end of fiscal year 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We plan to continue to purchase shares on the open market in
accordance with the existing authorizations, subject to various
factors including the price of the stock, the availability of
excess cash, our ability to maintain liquidity and financial
flexibility, securities laws restrictions, targeted capital
levels and other investment opportunities available.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">ACQUISITIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;From
time to time we acquire businesses that are viewed to be a good
strategic fit to our organization. Total cash paid for
acquisitions was $37.6&nbsp;million, $280.9&nbsp;million and
$26.4&nbsp;million during fiscal years 2005, 2004 and 2003,
respectively. Significant acquisitions during fiscal year 2004
were the former major franchise territories we now operate as
company-owned. Cash paid in fiscal year 2004 related to the
acquisition of these territories totaled $243.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RESTRICTED
CASH</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
hold certain cash balances that are restricted as to use. Cash
and cash equivalents&nbsp;&#150; restricted totaled
$516.9&nbsp;million at fiscal year end. Investment Services held
$465.0&nbsp;million of this total segregated in a special
reserve account for the exclusive benefit of customers pursuant
to Rule&nbsp;15c3-3 of the Securities Exchange Act of 1934.
Restricted cash of $28.1&nbsp;million at April&nbsp;30, 2005
held by Business Services is related to funds held to pay
payroll taxes on behalf of its customers. Restricted cash held
by Mortgage Services totaled $23.8&nbsp;million at
April&nbsp;30, 2005 for outstanding commitments to fund mortgage
loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">FISCAL YEAR 2006
OUTLOOK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
began construction on a new world headquarters facility during
fiscal year 2005. Estimated construction costs during fiscal
year 2006 of $103.5&nbsp;million will be financed from operating
cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our Board of Directors approved an increase of the quarterly
cash dividend from 22 cents to 25 cents per share, a 13.6%
increase, effective with the quarterly dividend payment on
October&nbsp;3, 2005 to shareholders of record on
September&nbsp;12, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
A condensed consolidating statement of cash flows by segment for
the fiscal year ended April&nbsp;30, 2005 follows. Generally,
interest is not charged on intercompany activities between
segments. Detailed consolidated statements of cash flows are
located in&nbsp;Item&nbsp;8.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Tax</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Mortgage</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Business</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Investment</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Fiscal Year 2005</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Services</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Services</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Services</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Services</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Corporate</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="28" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash provided by (used in):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>528,990</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>98,303</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>44,657</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(32,408</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(125,749</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(513,793</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(83,534</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>99,906</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(37,816</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7,618</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(44,584</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(58,410</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,482</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(15,126</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(23,223</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,686</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(391,362</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(427,915</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(448,912</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(184,156</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,725</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>19,965</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>599,378</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="28" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Net intercompany activities are excluded from investing and
financing activities within the segment cash flows. We believe
that by excluding intercompany activities, the cash flows by
segment more clearly depicts the cash generated and used by each
segment. Had intercompany activities been included, those
segments in a net lending situation would have been included in
investing activities, and those in a net borrowing situation
would have been included in financing activities.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">TAX
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Tax
Services has historically been our largest provider of annual
operating cash flows. The seasonal
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 33</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
nature of Tax Services generally results in a large positive
operating cash flow in the fourth quarter. Tax Services
generated $529.0&nbsp;million in operating cash flows primarily
related to net income, as cash is generally collected from
clients at the time services are rendered. Prior year cash
requirements for investing activities included
$243.2&nbsp;million paid to acquire former major franchisees.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
HSBC and its designated bank provide funding of all RALs offered
pursuant to a contract that expires in June 2006. If HSBC and
its designated bank do not continue to provide funding for RALs,
we could seek other RAL lenders to continue offering RALs to our
clients or consider alternative funding strategies. We believe
that a number of suitable lenders would be available to replace
HSBC should the need arise.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also believe that the RAL program is productive for the
Company and a useful service for our customers. The RAL program
is regularly reviewed both from a business perspective and to
ensure compliance with applicable state and federal laws. It is
our intention to continue to offer the RAL program in the
foreseeable future.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Loss of the RAL program could adversely affect our operating
results. In addition to the loss of revenues and income directly
attributable to the RAL program, the inability to offer RALs
could indirectly result in the loss of retail tax clients and
associated tax preparation revenues, unless we were able to take
mitigating actions. Total revenues related to the RAL program
(including revenues from participation interests) were
$182.6&nbsp;million for the year ended April&nbsp;30, 2005,
representing 4.1% of consolidated revenues and contributed
$101.3&nbsp;million to the segment&#146;s pretax results.
Revenues related to the RAL program totaled $174.2&nbsp;million
for the year ended April&nbsp;30, 2004, representing 4.1% of
consolidated revenues.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our international operations are generally self-funded. Cash
balances are held in Canada, Australia and the United Kingdom
independently in local currencies. H&#38;R Block Canada, Inc.
(&#147;Block Canada&#148;) has a commercial paper program for up
to $125.0&nbsp;million (Canadian). At April&nbsp;30, 2005, there
was no commercial paper outstanding. The peak borrowing during
fiscal year 2005 was $124.0&nbsp;million (Canadian).
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MORTGAGE
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment primarily generates cash as a result of the sale and
securitization of mortgage loans and residual interests and as
its residual interests mature. Mortgage Services provided
$98.3&nbsp;million in cash from operating activities primarily
due to the sale of mortgage loans. This segment also generated
$99.9&nbsp;million in cash from investing activities primarily
related to cash received from the maturity and sales of residual
interests. We regularly sell loans as a source of liquidity.
Loan sales in fiscal year 2005 were $31.0&nbsp;billion compared
with $23.2&nbsp;billion in fiscal year 2004. Additionally, Block
Financial Corporation (&#147;BFC&#148;) provides a line of
credit of at least $150&nbsp;million for working capital needs.
At the end of fiscal year 2005 there was no outstanding balance
on this&nbsp;facility.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">GAINS ON
SALES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Gains
on sales of mortgage assets totaled $822.1&nbsp;million, which
was primarily recorded as operating activities. The percentage
of cash proceeds we receive from our capital market transactions
is calculated as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash proceeds:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Whole loans sold by the Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>737,417</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>741,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>368,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual cash flows from Beneficial interest in Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>193,639</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loans securitized</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>69,665</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>389,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sale of previously securitized residuals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,396</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain (loss) on derivative instruments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>45,298</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,578</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,056</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,061,415</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,145,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>952,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained mortgage servicing rights</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>137,510</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions (reductions)&nbsp;to balance
    sheet&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,885</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,829</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>153,395</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Portion of gain on sale from capital market transactions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,214,810</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,241,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,001,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other items included in gain on sale:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in beneficial interest in Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>36,281</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairments to fair value of residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(12,235</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,063</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(54,111</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair value of derivative instruments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,555</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,379</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,085</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Direct origination and acquisition expenses, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(378,674</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(278,785</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(182,216</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loan sale repurchase reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(39,662</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(46,820</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,295</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,299</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(392,735</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(322,742</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(174,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reported gains on sales of mortgage assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>822,075</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>918,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>827,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    % of gain on sale from capital market transactions received as
    cash&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>87%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>92%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Includes residual interests and interest rate caps.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    Cash proceeds divided by portion of gain on sale related to
    capital market transactions.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 34</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">WAREHOUSE
FUNDING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;To
finance our prime originations, we use a warehouse facility with
capacity up to $25&nbsp;million. This annual facility bears
interest at one-month LIBOR plus 140 to 200&nbsp;basis points.
As of April&nbsp;30, 2005 and 2004, the balance outstanding
under this facility was $4.4&nbsp;million and $4.0&nbsp;million,
respectively, and is included in accounts payable, accrued
expenses and other on the consolidated balance&nbsp;sheets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See discussion of our non-prime warehouse facilities below in
&#147;Off-Balance Sheet Financing Arrangements.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the sources of liquidity available to the Mortgage
Services segment are sufficient for its needs. Risks to the
stability of these sources include, but are not limited to,
adverse changes in the perception of the non-prime industry,
adverse changes in the regulation of non-prime lending, changes
in the rating criteria of non-prime lending by third-party
rating agencies and, to a lesser degree, reduction in the
availability of third parties that provide credit enhancement.
Past performance of the securitizations will also impact the
segment&#146;s future participation in these markets. The
off-balance sheet warehouse facilities used by the Trusts are
subject to annual renewal, each at a different time during the
year, and any of the above events could lead to difficulty in
renewing the lines. These risks are mitigated by a staggering of
the renewal dates related to these warehouse lines and through
the use of multiple lending institutions to secure
these&nbsp;lines.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">BUSINESS
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Business
Services funding requirements are largely related to receivables
for completed work and &#147;work in process.&#148; We provide
funding sufficient to cover their working capital needs.
Business Services also has future obligations and commitments,
which are summarized in the tables below under &#147;Contractual
Obligations and Commercial Commitments.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
This segment generated $44.7&nbsp;million in operating cash
flows primarily related to net income. Additionally, Business
Services used $37.8&nbsp;million in investing activities
primarily related to contingent payments on prior acquisitions,
and $23.2&nbsp;million in financing activities as a result of
payments on acquisition debt.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INVESTMENT
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Investment
Services, through HRBFA, is subject to regulatory requirements
intended to ensure the general financial soundness and liquidity
of broker-dealers.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
HRBFA is required to maintain minimum net capital as defined
under Rule&nbsp;15c3-1 of the Securities Exchange Act of 1934
and complies with the alternative capital requirement, which
requires a broker-dealer to maintain net capital equal to the
greater of $250,000 or 2% of the combined aggregate debit
balances arising from customer transactions. The net capital
rule also provides that equity capital may not be withdrawn or
cash dividends paid if resulting net capital would be less than
the greater of 5% of combined aggregate debit items or 120% of
the minimum required net capital. At the end of fiscal year
2005, HRBFA&#146;s net capital of $121.2&nbsp;million, which was
19.2% of aggregate debit items, exceeded its minimum required
net capital of $12.6&nbsp;million by $108.6&nbsp;million. During
fiscal year 2005 and 2004, we contributed additional capital of
$27.0&nbsp;million and $32.0&nbsp;million, respectively, even
though HRBFA was in excess of the minimum net capital
requirement, and we may continue to do so in the future.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In fiscal year 2005, Investment Services used $32.4&nbsp;million
in its operating activities primarily due to operating losses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
To manage short-term liquidity, BFC provides HRBFA a
$300&nbsp;million unsecured credit facility. At the end of
fiscal year 2005 there was no outstanding balance on this
facility.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
HRBFA has letters of credit with a financial institution with a
credit limit of $125.0&nbsp;million. There were no commitments
outstanding on these letters of credit at any time during fiscal
year 2005 or 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Liquidity needs relating to client trading and margin-borrowing
activities are met primarily through cash balances in client
brokerage accounts and working capital. We believe these sources
of funds will continue to be the primary sources of liquidity
for Investment Services. Stock loans have historically been used
as a secondary source of funding and could be used in the
future, if warranted.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Securities borrowed and securities loaned transactions are
generally reported as collateralized financings. These
transactions require us to deposit cash and/or collateral with
the lender. Securities loaned consist of securities owned by
customers, which were purchased on margin. When loaning
securities, we receive cash collateral approximately equal to
the value of the securities loaned. The amount of cash
collateral is adjusted, as required, for market fluctuations in
the value of the securities loaned. Interest rates paid on the
cash collateral fluctuate as short-term interest rates change.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
To satisfy the margin deposit requirement of client option
transactions with the Options Clearing Corporation
(&#147;OCC&#148;), Investment Services pledges customers&#146;
margined securities. Pledged securities at the end of fiscal
year 2005 totaled $44.6&nbsp;million, an excess of
$7.9&nbsp;million over the margin requirement. Pledged
securities at the end of fiscal year 2004 totaled
$46.3&nbsp;million, an excess of $7.9&nbsp;million over the
margin requirement.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the funding sources for Investment Services are
stable. Liquidity risk within this segment is primarily limited
to maintaining sufficient capital levels to obtain securities
lending liquidity to support margin borrowing by customers.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 35</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>OFF-BALANCE SHEET FINANCING ARRANGEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We are party to various transactions with an off-balance sheet
component, including loan commitments and QSPEs, or Trusts.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have commitments to fund mortgage loans in our pipeline of
$3.9&nbsp;billion at April&nbsp;30, 2005, which are subject to
conditions and loan contract verification. There is no
commitment on the part of the borrower to close on the mortgage
loan at this stage of the lending process and external market
forces impact the probability of these loan commitments being
closed. Therefore, total commitments outstanding do not
necessarily represent future cash requirements. If the loan
commitments are exercised, they will be funded as described
below.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our relationships with the Trusts serve to reduce our capital
investment in our non-prime mortgage operations. These
arrangements are primarily used to sell mortgage loans, but a
portion may also be used to sell servicing advances and finance
residual interests. Additionally, these arrangements have freed
up cash and short-term borrowing capacity, improved liquidity
and flexibility, and reduced balance sheet risk, while providing
stability and access to liquidity in the secondary market for
mortgage loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Substantially all non-prime mortgage loans we originate are sold
daily to the Trusts. The Trusts purchase the loans from us using
five warehouse facilities, arranged by us, totaling
$9.0&nbsp;billion. These facilities are subject to various
Option One performance triggers, limits and financial covenants,
including tangible net worth and leverage ratios. In addition,
these facilities contain cross-default features in which a
default in one facility would trigger a default under the other
facilities as well. These various facilities bear interest at
one-month LIBOR plus 50 to 400&nbsp;basis points and expire on
various dates during the year. In addition, some of the
facilities provide for the payment of minimum usage fees.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Subsequent to April&nbsp;30, 2005, we increased the Trusts&#146;
warehouse capacity by adding an additional $1.0&nbsp;billion
facility. This facility bears interest at one-month LIBOR plus
45 to 345&nbsp;basis points.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
When we sell loans to the Trusts, we remove the mortgage loans
from our balance sheet and record the gain on the sale, cash and
a beneficial interest in Trusts, which represents the ultimate
expected outcome from the disposition of the loans. Our
beneficial interest in Trusts totaled $215.4&nbsp;million and
$153.8&nbsp;million at April&nbsp;30, 2005 and 2004,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Subsequently, the Trusts, as directed by their third-party
beneficial interest holders, either sell the loans directly to
third-party investors or back to us to pool the loans for
securitization. The decision to complete a whole loan sale or a
securitization is dependent on market conditions.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
For fiscal year 2005, the final disposition of loans sold to the
Trusts was 92% whole loan sales and 8% securitizations. For
fiscal year 2004, the final disposition was 76% whole loan sales
and 24% securitizations. The current year shift to whole loan
sales is due to the more favorable pricing in the whole loan
market. Increased whole loan sale transactions result in cash
being received earlier. Additionally, whole loan sales do not
add residual interests to our balance sheet, and therefore, we
do not retain balance sheet risk.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
If the Trusts sell the mortgage loans in a whole loan sale, we
receive cash for our beneficial interest in Trusts. In a
securitization transaction, the Trusts transfer the loans and
the corresponding right to receive all payments on the loans to
our consolidated special purpose entity, after which we transfer
our beneficial interest in Trusts and the loans to a
securitization trust. The securitization trust meets the
definition of a QSPE and is therefore not consolidated. The
securitization trust issues bonds, which are supported by the
cash flows from the pooled loans, to third-party investors. We
retain an interest in the loans in the form of a residual
interest and, therefore, usually assume the first risk of loss
for credit losses in the loan pool. As the cash flows of the
underlying loans and market conditions change, the value of our
residual interests may also change, resulting in potential
write-ups or impairment of our residual interests.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
At the settlement of each securitization, we record cash
received and our residual interests. Additionally, we reverse
the beneficial interest in Trusts. These residual interests are
classified as trading securities. See Item&nbsp;8, note&nbsp;1
to our consolidated financial statements for our methodology
used in valuing our residual interests.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
To accelerate the cash flows from our residual interests, we
securitize the majority of our residual interests in net
interest margin (&#147;NIM&#148;) transactions. In a NIM
transaction, the residual interests are transferred to another
QSPE (&#147;NIM trust&#148;), which then issues bonds to
third-party investors. The proceeds from the bonds are returned
to us as payment for the residual interests. The bonds are
secured by the pooled residual interests and are obligations of
the NIM trust. We retain a subordinated interest in the NIM
trust, and receive cash flows on our residual interest generally
after the NIM bonds issued to the third-party investors are paid
in full.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
At the settlement of each NIM transaction, we remove the
residual interests sold from our consolidated balance sheet and
record the cash received and the new residual interest retained.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 36</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
These residual interests are classified as available-for-sale
securities.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Residual interests retained from NIM securitizations may also be
sold in a subsequent securitization or sale transaction.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Loans totaling $6.7&nbsp;billion and $3.2&nbsp;billion were held
by the Trusts as of April&nbsp;30, 2005 and 2004, respectively,
and were not recorded on our consolidated balance sheets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In connection with the sale of mortgage loans, we provide
certain representations and warranties allowing the purchaser
the option of returning the purchased loans to us under certain
conditions. We may recognize losses as a result of the
repurchase of loans under these arrangements. We maintain
reserves for the repurchase of loans based on historical trends.
See Item&nbsp;8, note&nbsp;17 to our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Financial Accounting Standards Board (&#147;FASB&#148;)
intends to reissue the exposure draft, &#147;Qualifying Special
Purpose Entities and Isolation of Transferred Assets, an
Amendment of FASB Statement No.&nbsp;140,&#148; during the third
quarter of calendar year 2005. The purpose of the proposal is to
provide more specific guidance on the accounting for transfers
of financial assets to a QSPE.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Provisions in the first exposure draft, as well as tentative
decisions reached by the FASB during its deliberations, may
require us to consolidate our current QSPEs (the Trusts)
established in our Mortgage Services segment. As of
April&nbsp;30, 2005, the Trusts had both assets and liabilities
of $6.7&nbsp;billion. The provisions of the exposure draft are
subject to FASB due process and are subject to change. We will
continue to monitor the status of the exposure draft, and
consider changes, if any, to current structures as a result of
the proposed rules.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>COMMERCIAL PAPER ISSUANCE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We participate in the U.S. and Canadian commercial paper
(&#147;CP&#148;) markets to meet daily cash needs and fund
mortgage loans. CP is issued by BFC and Block Canada,
wholly-owned subsidiaries of the Company. The following chart
provides the debt ratings for BFC as of April&nbsp;30, 2005 and
2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Short-term</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Long-term</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fitch</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Moody&#146;s</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>P2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>A3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    S&#38;P</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>A2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>BBB+&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following chart provides the debt ratings for Block Canada
as of April&nbsp;30, 2005 and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Short-term</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Corporate</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Trend</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    DBRS</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>R-1 (low)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Stable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Moody&#146;s</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>P2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We use capital primarily to fund working capital requirements,
pay dividends, repurchase our shares and acquire businesses.
Commercial paper borrowings peaked at $2.1&nbsp;billion in
February 2005 related to funding of our participation interests
in RALs. No CP was outstanding at April&nbsp;30, 2005 or 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
U.S.&nbsp;CP issuances are supported by unsecured committed
lines of credit (&#147;CLOCs&#148;). During fiscal year 2005, we
replaced our single $2.0&nbsp;billion CLOC with two
$1.0&nbsp;billion CLOCs. The two CLOCs are from a consortium of
thirty-one banks. The first $1.0&nbsp;billion CLOC is subject to
annual renewal in August 2005, has a one-year term-out provision
with a maturity date in August 2006 and has an annual facility
fee of ten basis points per annum. The second $1.0&nbsp;billion
CLOC has a maturity date of August 2009 and has an annual
facility fee of twelve basis points per annum. These lines are
subject to various affirmative and negative covenants, including
a minimum net worth covenant.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
An additional line of credit of $750.0&nbsp;million was put into
place for the period of January 26 to February&nbsp;25, 2005 as
an alternative to CP issuance during the peak RAL season. This
line is subject to various covenants, substantially similar to
the primary CLOCs.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
These CLOCs were undrawn at April&nbsp;30, 2005. There are no
rating contingencies under the CLOCs.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Canadian issuances are supported by a credit facility
provided by one bank in an amount not to exceed
$125.0&nbsp;million (Canadian). The Canadian CLOC is subject to
annual renewal in December 2005. This CLOC was undrawn at
April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the CP market to be stable. Risks to the stability of
our CP market participation would be a short-term rating
downgrade, adverse changes in our financial performance,
non-renewal or termination of the CLOCs, adverse publicity and
operational risk within the CP market. We believe if any of
these events were to occur, the CLOCs, to the extent available,
could be used for an orderly exit from the CP market, though at
a higher cost to us. Additionally, we could turn to other
sources of liquidity, including cash, debt issuance under the
existing shelf registration and asset sales or securitizations.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 37</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
A summary of our obligations to make future payments as of
April&nbsp;30, 2005 is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="20" align="right" nowrap>(in 000s)</TD><TD></TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Less Than</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>After</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>1&nbsp;Year</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>1&nbsp;&#150; 3&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>4&nbsp;&#150; 5&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>5&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>897,046</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>45</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>498,916</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>91</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>397,994</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term obligation to government</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>213,360</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>106,680</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>106,680</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>38,022</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25,159</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12,863</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pension obligation assumed</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,929</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,625</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,545</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,698</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,061</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital lease obligation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,550</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>341</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>730</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>997</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>11,482</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating leases</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>708,611</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>229,768</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>313,264</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>124,945</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>40,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total contractual cash obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,886,518</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>364,618</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>936,998</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>129,731</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>455,171</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
In October 2004, we issued $400.0&nbsp;million of
5.125%&nbsp;Senior Notes, due 2014. The Senior Notes are not
redeemable by the bondholders prior to maturity. The net
proceeds of this transaction were used to repay the
$250.0&nbsp;million in
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes, which were due November&nbsp;1, 2004. The remaining
proceeds were used for working capital, capital expenditures,
repayment of other debt and other general corporate purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In April 2000, we issued $500.0&nbsp;million of
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>%&nbsp;Senior
Notes, due 2007. The Senior Notes are not redeemable prior to
maturity. The net proceeds of this transaction were used to
repay a portion of the short-term borrowings that initially
funded the acquisition of OLDE.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Future payments related to Business Services acquisitions and
capital lease obligations are included in long-term debt on our
consolidated balance sheets. Our debt to total capital ratio was
32.4% at April&nbsp;30, 2005, compared with 31.1% at
April&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of April&nbsp;30, 2005, we had $850.0&nbsp;million remaining
under our shelf registration available for additional debt
issuance.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In connection with our acquisition of the non-attest assets of
M&#38;P in August 1999, we assumed certain pension liabilities
related to M&#38;P&#146;s retired partners. We make payments in
varying amounts on a monthly basis, which are included in other
noncurrent liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Operating leases, although requiring future cash payments, are
not included in our consolidated balance sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
A summary of our commitments as of April&nbsp;30, 2005, which
may or may not require future payments, expire as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="20" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Less Than</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>After</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>1&nbsp;Year</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>1 - 3&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>4 - 5&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>5&nbsp;Years</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments to fund mortgage loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3,931,926</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3,931,926</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments to sell mortgage loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,707,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,707,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pledged securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,609</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,609</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitment to fund M&#38;P</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>75,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>75,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Franchise Equity Lines of Credit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>68,949</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,122</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,476</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>28,351</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage loan repurchase obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>41,233</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>41,233</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Construction of new building</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>143,116</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>103,505</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>39,611</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other commercial commitments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,219</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,221</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,500</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>458</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>40</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total commercial commitments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>13,020,052</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>12,928,616</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>62,587</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>28,809</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>40</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
See discussion of commitments in Item&nbsp;8, note&nbsp;17 to
our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REGULATORY ENVIRONMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The U.S., various state, local, provincial and foreign
governments and some self-regulatory organizations have enacted
statutes and ordinances, and/or adopted rules and regulations,
regulating aspects of our business. These aspects include, but
are not limited to, commercial income tax return preparers,
income tax courses, the electronic filing of income tax returns,
the
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 38</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
facilitation of RALs, loan originations and assistance in loan
originations, mortgage lending, privacy, consumer protection,
franchising, sales methods, brokers, broker-dealers and various
aspects of securities transactions, financial planners,
investment advisors, accountants and the accounting practice. We
seek to determine the applicability of such statutes,
ordinances, rules and regulations (collectively,
&#147;Laws&#148;) and comply with those Laws.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
From time to time in the ordinary course of business, we receive
inquiries from governmental and self-regulatory agencies
regarding the applicability of Laws to our services and
products. In response to past inquiries, we have agreed to
comply with such Laws, convinced the authorities that such Laws
were not applicable or that compliance already exists, and/or
modified our activities in the applicable jurisdiction to avoid
the application of all or certain parts of such Laws. We believe
that the past resolution of such inquiries and our ongoing
compliance with Laws have not had a material adverse effect on
our consolidated financial statements. We cannot predict what
effect future Laws, changes in interpretations of existing Laws,
or the results of future regulator inquiries with respect to the
applicability of Laws may have on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NEW ACCOUNTING PRONOUNCEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
See Item&nbsp;8, note&nbsp;1 to our consolidated financial
statements for a discussion of recently issued accounting
pronouncements.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RECONCILIATION OF NON-GAAP FINANCIAL INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We report our financial results in accordance with generally
accepted accounting principles (&#147;GAAP&#148;). However, we
believe certain non-GAAP performance measures and ratios used in
managing the business may provide additional meaningful
comparisons between current year results and prior periods, by
excluding certain items that do not represent results from our
basic operations. Reconciliations to GAAP financial measures are
provided below. These non-GAAP financial measures should be
viewed in addition to, not as an alternative for, our reported
GAAP results.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="2" align="left" nowrap><B>Origination Margin</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>749,925</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>635,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>493,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Expenses netted against gain on sale revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>378,304</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>162,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>221,300</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>141,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>169,621</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allocated support departments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>24,161</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,323</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>692,824</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>542,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>419,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Divided by origination volume</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>31,001,724</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,256,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,577,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total cost of origination</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.23%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.33%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.53%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<A name='121'></A>
</DIV>

<!-- link1 "ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKGENERAL" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>ITEM&nbsp;7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>GENERAL</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">INTEREST RATE
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have established a formal investment policy to help minimize the
market risk exposure of our cash equivalents and
available-for-sale securities, which are primarily affected by
credit quality and movements in interest rates. These guidelines
focus on managing liquidity and preserving principal and
earnings. Most of our interest rate-sensitive assets and
liabilities are managed at the subsidiary level.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our cash equivalents are primarily held for liquidity purposes
and are comprised of high quality, short-term investments,
including qualified money market funds. As of April&nbsp;30,
2005, our non-restricted cash and cash equivalents had an
average maturity
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 39</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
of less than three months with an average credit quality of AAA.
With such a short maturity, our portfolio&#146;s market value is
relatively insensitive to interest rate changes. We hold
investments in fixed income securities at our captive insurance
subsidiary. See the table below for sensitivities to changes in
interest rates. See additional discussion of interest rate risk
included below in Mortgage Services and Investment Services.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
At April&nbsp;30, 2005, no commercial paper was outstanding. For
fiscal year 2005, the average issuance term was 29&nbsp;days and
the average outstanding balance was $388.2&nbsp;million. As
commercial paper and bank borrowings are seasonal, interest rate
risk typically increases through our third fiscal quarter and
declines to zero by fiscal year-end. See Item&nbsp;7,
&#147;Financial Condition&#148; for additional information.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our current portion of long-term debt and long-term debt at
April&nbsp;30, 2005 consists primarily of fixed-rate Senior
Notes; therefore, a change in interest rates would have no
impact on consolidated pretax earnings. See Item&nbsp;8,
note&nbsp;10 to our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">EQUITY PRICE
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have exposure to the equity markets in several ways. The largest
exposures are through our deferred compensation plans and equity
investments at our captive insurance subsidiary. Within the
deferred compensation plans we have mismatches in asset and
liability amounts and investment choices (both fixed-income and
equity). At April&nbsp;30, 2005 and 2004, the impact of a 10%
market value change in the combined equity assets held by our
deferred compensation plans and our captive insurance subsidiary
would be approximately $9.3&nbsp;million and $8.9&nbsp;million,
respectively, assuming no offset for the liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TAX SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">FOREIGN EXCHANGE RATE
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
operations in international markets are exposed to movements in
currency exchange rates. The currencies involved are the
Canadian dollar, the Australian dollar and the British pound. We
translate revenues and expenses related to these operations at
the average of exchange rates in effect during the period.
Assets and liabilities of foreign subsidiaries are translated
into U.S.&nbsp;dollars at exchange rates prevailing at the end
of the year. Translation adjustments are recorded as a separate
component of other comprehensive income in stockholders&#146;
equity. Translation of financial results into U.S.&nbsp;dollars
does not presently materially affect, and has not historically
materially affected, our consolidated financial results,
although such changes do affect the year-to-year comparability
of the operating results in U.S.&nbsp;dollars of our
international businesses. We estimate a 10% change in foreign
exchange rates by itself would impact consolidated pretax income
in fiscal years 2005 and 2004 by approximately $1.3&nbsp;million
and cash balances at April&nbsp;30, 2005 and 2004 by
$4.7&nbsp;million and $6.1&nbsp;million,&nbsp;respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MORTGAGE SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">INTEREST RATE RISK&nbsp;&#150; PRIME
ORIGINATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
regularly enter into rate-lock commitments with our customers to
fund prime mortgage loans within specified periods of time. The
fair value of rate-lock commitments is calculated based on the
current market pricing of short sales of FNMA, FHLMC and GNMA
mortgage-backed securities and the coupon rates of the eligible
loans. At April&nbsp;30, 2005, we recorded an asset of
$0.8&nbsp;million related to rate-lock commitments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We sell short FNMA, FHLMC and GNMA mortgage-backed securities to
reduce the risk related to our prime commitments to fund
fixed-rate prime loans. The position on certain, or all, of the
fixed-rate mortgage loans is closed approximately
10-15&nbsp;days prior to standard Public Securities Association
(&#147;PSA&#148;) settlement dates. At April&nbsp;30, 2005 we
recorded a liability of $0.8&nbsp;million related to these
instruments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
To finance our prime originations, we use a warehouse facility
with capacity up to $25&nbsp;million, which bears interest at
one-month LIBOR plus 140 to 200&nbsp;basis points. As of
April&nbsp;30, 2005, the balance outstanding under this facility
was $4.4&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INTEREST RATE RISK&nbsp;&#150;
NON-PRIME
ORIGINATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Interest
rate changes impact the value of the loans in our origination
pipeline, the beneficial interest in Trusts and forward loan
sale commitments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are exposed to interest rate risk associated with loans in
our origination pipeline, consisting of fixed-and
adjustable-rate loans, which are generally sold through whole
loan sales or securitizations. We have binding and non-binding
commitments to fund mortgage loans of $0.9&nbsp;billion and
$3.0&nbsp;billion, respectively, at April&nbsp;30, 2005, subject
to conditions and loan contract verification. Of these
commitments, we estimate only $2.0&nbsp;billion will likely be
originated.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As a result of whole loan sales to the Trusts, we remove the
mortgage loans from our balance sheet and record the gain on
sale, cash and a beneficial interest in Trusts, which represents
the ultimate expected outcome from the disposition of the loans.
See Item&nbsp;7, &#147;Off-Balance Sheet Financing
Arrangements.&#148; At April&nbsp;30, 2005, there were
$6.7&nbsp;billion of loans held in the Trusts and the value of
our beneficial interest in Trusts was $215.4&nbsp;million.
Changes in interest rates and other market factors may result in
a change in value of our beneficial interest in Trusts.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We use forward loan sale commitments to reduce risk associated
with loans in the pipeline. These commitments, which represent
an obligation to sell a non-prime loan at a specific price in
the future, increase in value as interest rates rise and
decrease as rates fall. At April&nbsp;30, 2005, there were
$8.7&nbsp;billion in forward
</DIV>

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    <TD width="1%"></TD>
    <TD width="99%"></TD>
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<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 40</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
loan sale commitments, and most of them give us the option to
under- or over-deliver by five to ten percent. Forward loan sale
commitments for non-prime loans are not considered derivative
instruments and are therefore not recorded in our financial
statements. Forward loan sale commitments lock in the execution
price on the loans that will ultimately be delivered into a
whole loan sale. With $8.7&nbsp;billion of forward loan sale
commitments at April&nbsp;30, 2005 (and the option to adjust the
commitment amount to between $7.8&nbsp;billion and
$9.6&nbsp;billion), net of pipeline loans estimated at
$2.0&nbsp;billion and the anticipated sale of $6.7&nbsp;billion
in loans by the Trusts, we believe changes in interest rates
will not have a material impact on the gains or losses we record
on our commitments to fund and sell mortgage&nbsp;loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We use interest rate swaps to reduce interest rate risk
associated with non-prime loans. We generally enter into
interest rate swap arrangements related to existing loan
applications with rate-lock commitments and, beginning at the
end of our second quarter, for rate-lock commitments we expect
to make in the next 30&nbsp;days. Interest rate swaps represent
an agreement to exchange interest rate payments, effectively
converting our fixed financing costs into a floating rate. These
contracts increase in value as rates rise and decrease in value
as rates fall. At April&nbsp;30, 2005, we had a liability of
$1.3&nbsp;million on our balance sheet related to interest rate
swaps. See table below for sensitivities to changes in interest
rates for swaps.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">DELIVERY
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
have exposure to delivery risk in our non-prime origination
operations, which regularly enter into forward loan sale
commitments prior to loans being originated. It is possible that
we will be unable to originate the loans or that the loans
originated will not meet the required characteristics of the
forward loan sale commitments. Several remedies are available,
although use of the remedies could reduce the execution price or
the effectiveness of the forward loan sale commitment in
reducing interest rate risk.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RESIDUAL
INTERESTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Relative
to modeled assumptions, an increase or decrease in interest
rates would impact the value of our residual interests and could
affect accretion income related to our residual interests.
Residual interests bear the interest rate risk embedded within
the securitization due to an initial fixed-rate period on the
loans versus a floating-rate funding cost. Residual interests
also bear the on-going risk that the floating interest rate
earned on the mortgage loans is different from the floating
interest rate on the bonds sold in the&nbsp;securitization.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We enter into interest rate caps to mitigate interest rate risk
associated with mortgage loans that will be securitized and
residual interests that are classified as trading securities
because they will be sold in a subsequent NIM transaction. The
caps enhance the marketability of the securitization and NIM
transactions. An interest rate cap represents a right to receive
cash if interest rates rise above a contractual strike rate, its
value therefore increases as interest rates rise. The interest
rate used in our interest rate caps is based on LIBOR. At
April&nbsp;30, 2005 we recorded an asset totaling
$12.5&nbsp;million related to interest rate&nbsp;caps.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
See table below for sensitivities to changes in interest rates
for residual interests and caps. See Item&nbsp;8, note&nbsp;6 to
the consolidated financial statements for additional analysis of
interest rate risk and other financial risks impacting residual
interests.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
It is our policy to use derivative instruments only for the
purpose of offsetting or reducing the risk of loss associated
with a defined or quantified exposure.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MORTGAGE SERVICING
RIGHTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Declining
interest rates may cause increased refinancing activity, which
reduces the life of the loans underlying the residual interests
and MSRs, thereby reducing their fair value. The fair value of
MSRs generally increases in a rising rate environment, although
MSRs are recorded at the lower of cost or market value.
Reductions in the fair value of these assets impact earnings
through impairment charges. See Item&nbsp;8, note&nbsp;6 to our
consolidated financial statements for further sensitivity
analysis of other MSR valuation&nbsp;assumptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INVESTMENT SERVICES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">INTEREST RATE
RISK</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;HRBFA
holds interest bearing receivables from customers, brokers,
dealers and clearing organizations, which consist primarily of
amounts due on margin transactions and are generally short-term
in nature. We fund these short-term assets with short-term
variable rate liabilities from customers, brokers and dealers,
including stock loan activity. Although there may be differences
in the timing of the re-pricing related to these assets and
liabilities, we believe we are not significantly exposed to
interest rate risk in this area. As a result, any change in
interest rates would not materially impact our consolidated
earnings.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our fixed-income trading portfolio is affected by changes in
market rates and prices. The risk is the loss of income arising
from adverse changes in the value of the trading portfolio. We
value the trading portfolio at quoted market prices and the
market value of our trading portfolio at April&nbsp;30, 2005 was
approximately $6.3&nbsp;million, net of $4.8&nbsp;million in
securities sold short. See table below for sensitivities to
changes in interest rates. With respect to our fixed-income
securities portfolio, we manage our market price risk exposure
by limiting concentration risk, maintaining minimum credit
quality and limiting inventory to anticipated retail demand and
current market conditions.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 41</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The sensitivities of certain financial instruments to changes in
interest rates as of April&nbsp;30, 2005 and 2004 are presented
below. The following table represents hypothetical instantaneous
and sustained parallel shifts in interest rates and should not
be relied on as an indicator of future expected results.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="30" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="34" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="29" align="center" nowrap>Basis Point Change</TD>
</TR>



<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fair Value at</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="28" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>April&nbsp;30, 2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>-&nbsp;200</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>-&nbsp;100</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>-&nbsp;50</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;50</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;100</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;200</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;300</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interests in securitizations&nbsp;&#150;
    available-for-sale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>205,936</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>84,845</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>30,417</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>13,637</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(13,520</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(28,174</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(51,466</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(75,296</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest rate caps</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12,458</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>205</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,580</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,746</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,262</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>46,751</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>64,195</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments at captive insurance subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9,968</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,079</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>522</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>256</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(248</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(487</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(942</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,368</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed income&nbsp;&#150; trading (net)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,252</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,958</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>893</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>426</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(390</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(749</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,383</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,921</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest rate swaps</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,325</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(84,723</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(43,024</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(19,524</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>19,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43,024</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>84,723</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>123,771</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="34" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="29" align="center" nowrap>Basis Point Change</TD>
</TR>



<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fair Value at</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="20" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>April&nbsp;30, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>-&nbsp;50</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;50</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;100</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;200</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>+&nbsp;300</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interests in securitizations&nbsp;&#150;
    available-for-sale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>210,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>45,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(18,563</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(32,709</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(46,527</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(48,090</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments at captive insurance subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,069</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,591</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,146</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,667</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed income&nbsp;&#150; trading (net)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(637</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,228</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,271</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,164</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

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<A name='122'></A>
</DIV>

<!-- link1 "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>ITEM&nbsp;8.&nbsp;FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DISCUSSION OF FINANCIAL RESPONSIBILITY ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We at H&#38;R&nbsp;Block are guided by our core values of client
focus, integrity, excellence, respect and teamwork. These values
govern the manner in which we serve clients and each other, and
are embedded in the execution and delivery of our
responsibilities to our shareholders. H&#38;R&nbsp;Block&#146;s
Management is responsible for the integrity and objectivity of
the information contained in this document. Management is
responsible for the consistency of reporting this information
and for ensuring that accounting principles generally accepted
in the United States are used. In discharging this
responsibility, Management maintains an extensive program of
internal audits and require the management teams of our
individual subsidiaries to certify their respective financial
information. Our system of internal control over financial
reporting also includes formal policies and procedures,
including a Code of Business Ethics and Conduct program designed
to encourage and assist all employees and directors in living up
to high standards of integrity.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Audit Committee of the Board of Directors, composed solely
of outside and independent directors, meets periodically with
management, the independent auditors and the chief internal
auditor to review matters relating to our financial statements,
internal audit activities, internal accounting controls and
non-audit services provided by the independent auditors. The
independent auditors and the chief internal auditor have full
access to the Audit Committee and meet, both with and without
management present, to discuss the scope and results of their
audits, including internal control, audit and financial matters.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
KPMG LLP audited our 2005 and 2004 consolidated financial
statements and PricewaterhouseCoopers LLP audited our 2003
consolidated financial statements. Their audits were conducted
in accordance with the standards of the Public Company
Accounting Oversight Board&nbsp;(U.S.).
</DIV>

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    <B><FONT color="#AADD6D"> 42</FONT></B></TD>
    <TD>&nbsp;</TD>
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<P><HR noshade><P>
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<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT&#146;S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING ...</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules&nbsp;13a-15(f). Under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
&#147;Internal Control&nbsp;&#150; Integrated Framework&#148;
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (&#147;COSO&#148;) as of April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Based on our assessment, management determined that a material
weakness existed in the Company&#146;s internal controls over
accounting for income taxes as of April&nbsp;30, 2005.
Specifically, the Company did not maintain sufficient resources
in the corporate tax function to accurately identify, evaluate
and report, in a timely manner, non-routine and complex
transactions. In addition, the Company had not completed the
requisite historical analysis and related reconciliations to
ensure tax balances were appropriately stated prior to the
completion of the Company&#146;s internal control activities.
These deficiencies resulted in errors in the Company&#146;s
accounting for income taxes. These errors were corrected prior
to issuance of the consolidated financial statements as of and
for the year ended April&nbsp;30, 2005. In the aggregate, these
deficiencies represent a material weakness in internal control
over financial reporting on the basis that there is a more than
remote likelihood that a material misstatement of the
Company&#146;s annual or interim financial statements will not
be prevented or detected by its internal control over financial
reporting. Because of this material weakness in internal control
over financial reporting, management concluded that, as of
April&nbsp;30, 2005, the Company&#146;s internal control over
financial reporting was not effective based on the criteria set
forth by COSO.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168501.gif" alt="-s- Mark A. Ernst">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Mark A. Ernst
</DIV>

<DIV align="left" style="font-size: 10pt;">
Chairman of the Board, President and Chief Executive Officer
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168509.gif" alt="-s- William L. Trubeck">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
William L. Trubeck
</DIV>

<DIV align="left" style="font-size: 10pt;">
Executive Vice President and Chief Financial Officer
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
....</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The Board of Directors and Stockholders of H&#38;R Block, Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have audited the accompanying consolidated balance sheets of
H&#38;R&nbsp;Block, Inc. and its subsidiaries (the Company) as
of April&nbsp;30, 2005 and 2004, and the related consolidated
statements of income and comprehensive income,
stockholders&#146; equity, and cash flows for each of the years
in the two-year period ended April&nbsp;30, 2005. These
consolidated financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of H&#38;R&nbsp;Block, Inc. and its subsidiaries as of
April&nbsp;30, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
two-year period ended April&nbsp;30, 2005, in conformity with
U.S.&nbsp;generally accepted accounting principles.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As discussed in Note&nbsp;1 to the consolidated financial
statements, the Company changed its method of accounting to
adopt Emerging Issues Task Force Issue No.&nbsp;00-21,
&#147;Revenue Arrangements with Multiple Deliverables,&#148; and
Statement of Financial Accounting Standards No.&nbsp;148,
&#147;Accounting for Stock-Based Compensation&nbsp;&#150;
Transition and Disclosure&#148; during the year ended
April&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As discussed in Note&nbsp;2 to the consolidated financial
statements, the Company restated its financial statements for
its fiscal year ended April&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Company&#146;s internal control over
financial reporting as of April&nbsp;30, 2005, based on criteria
established in <I>Internal Control&nbsp;&#150; Integrated
Framework </I>issued by the
</DIV>

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    <B><FONT color="#AADD6D"> 43</FONT></B></TD>
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</TABLE>

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<P><HR noshade><P>
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<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
Committee of Sponsoring Organizations of the Treadway Commission
(&#147;COSO&#148;), and our report dated July&nbsp;29, 2005
expressed an unqualified opinion on management&#146;s assessment
of, and an adverse opinion on the effective operation of,
internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168562.gif" alt="-s- KPMG">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Kansas City, Missouri
</DIV>

<DIV align="left" style="font-size: 10pt;">
July&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
....</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The Board of Directors and Stockholders of H&#38;R&nbsp;Block,
Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have audited management&#146;s assessment, included in the
accompanying<I> Management&#146;s Report On Internal Control
Over Financial Reporting (Item&nbsp;9A(b)),</I>that H&#38;R
Block, Inc. and subsidiaries (the Company) did not maintain
effective internal control over financial reporting as of
April&nbsp;30, 2005, because of the effect of the material
weakness identified in management&#146;s assessment that the
Company&#146;s controls and procedures over accounting for
income taxes were ineffective, based on criteria established in
<I>Internal Control&nbsp;&#150; Integrated Framework </I>issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (&#147;COSO&#148;). The Company&#146;s management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting. Our responsibility
is to express an opinion on management&#146;s assessment and an
opinion on the effectiveness of the Company&#146;s internal
control over financial reporting based on our audit.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management&#146;s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
A company&#146;s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company&#146;s
internal control over financial reporting includes those
policies and procedures that (1)&nbsp;pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2)&nbsp;provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3)&nbsp;provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company&#146;s assets that could have a material effect on the
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
A material weakness is a control deficiency, or combination of
control deficiencies, that results in more than a remote
likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The
following material weakness has been identified and included in
management&#146;s assessment: The Company did not maintain
sufficient resources in the corporate tax function to accurately
identify, evaluate and report, in a timely manner, nonroutine
and complex transactions. In addition, the Company had not
completed the requisite historical analysis and related
reconciliations to ensure tax balances were appropriately stated
prior to the completion of the Company&#146;s internal control
activities. These deficiencies resulted in errors in the
Company&#146;s accounting for income taxes. Because of these
deficiencies, there is more than a remote likelihood that a
material misstatement in the Company&#146;s annual or interim
financial statements due to errors in accounting for income
taxes could occur and not be prevented or detected by its
internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of H&#38;R&nbsp;Block, Inc. and
subsidiaries as of April&nbsp;30, 2005 and 2004, and the related
consolidated statements of income and comprehensive income,
stockholders&#146; equity, and cash flows for each of the years
in the two-year period ended April&nbsp;30, 2005. The
aforementioned material weakness was considered in determining
the nature, timing, and extent of audit tests applied in our
audit of the fiscal year 2005 consolidated financial statements,
and this report does not affect our report dated July&nbsp;29,
2005, which expressed an unqualified opinion on those
consolidated financial statements.
</DIV>

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    <B><FONT color="#AADD6D"> 44</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
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<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In our opinion, management&#146;s assessment that
H&#38;R&nbsp;Block, Inc. and subsidiaries did not maintain
effective internal control over financial reporting as of
April&nbsp;30, 2005, is fairly stated, in all material respects,
based on criteria established in <I>Internal Control&nbsp;&#150;
Integrated Framework </I>issued by the Committee of Sponsoring
Organizations of the Treadway Commission (&#147;COSO&#148;).
Also, in our opinion, because of the effect of the material
weakness described above on the achievement of the objectives of
the control criteria, the Company has not maintained effective
internal control over financial reporting as of April&nbsp;30,
2005, based on criteria established in <I>Internal
Control&nbsp;&#150; Integrated Framework issued </I>by the
Committee of Sponsoring Organizations of the Treadway Commission
(&#147;COSO&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168562.gif" alt="-s- KPMG">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Kansas City, Missouri
</DIV>

<DIV align="left" style="font-size: 10pt;">
July&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
....</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
To the Board of Directors and Shareholders of
H&#38;R&nbsp;Block, Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In our opinion, the accompanying consolidated statements of
income and comprehensive income, of cash flows and of
stockholders&#146; equity present fairly, in all material
respects, the results of operations and cash flows of
H&#38;R&nbsp;Block, Inc. and its subsidiaries (the
&#147;Company&#148;) for the year ended April&nbsp;30, 2003 in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company&#146;s management; our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As described in Note&nbsp;2, the financial statements have been
restated for the year ended April&nbsp;30, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="c91685c9168563.gif" alt="-s- PricewaterhouseCoopers LLP">
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
June&nbsp;10, 2003, except for Note&nbsp;2
</DIV>

<DIV align="left" style="font-size: 10pt;">
as to which the date is July&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 10pt;">
Kansas City, Missouri
</DIV>

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    <TD align="center">
    <B><FONT color="#AADD6D"> 45</FONT></B></TD>
</TR>

</TABLE>
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<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">CONSOLIDATED STATEMENTS OF INCOME
AND</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">COMPREHENSIVE INCOME</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(Amounts in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">REVENUES&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,920,586</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,639,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,295,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gains on sales of mortgage assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>822,075</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>918,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>827,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Product and other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>478,443</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>460,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>412,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>198,915</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">OPERATING EXPENSES&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,999,220</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,794,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,625,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>416,421</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>380,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>952,125</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>848,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>760,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,367,766</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,023,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,809,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,052,253</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,224,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>62,367</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,829</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle<BR>
    for multiple deliverable revenue arrangements,<BR>
    less tax benefit of $4,031</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">NET INCOME</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">BASIC EARNINGS PER
    SHARE&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(.03</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">DILUTED EARNINGS PER
    SHARE&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(.04</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">COMPREHENSIVE INCOME&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized gains on securities, net of taxes:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized holding gains arising during the period, less<BR>
    taxes of $36,670, $64,174, and $70,983</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>59,409</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reclassification adjustment for gains included in income,
    less<BR>
    taxes of $40,661, $67,561 and $72,370</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(65,848</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(109,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(117,073</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in foreign currency translation adjustments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,946</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>638,364</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>716,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>492,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="right" style="font-size: 8pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to consolidated financial statements.
</DIV>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    See note&nbsp;2.</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 46</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">CONSOLIDATED BALANCE SHEETS</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="10" align="right" nowrap>(Amounts in 000s, except share and per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <BR>
    <B><FONT color="#AADD6D">ASSETS</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">CURRENT
    ASSETS&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,100,213</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,072,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents&nbsp;&#150; restricted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>516,909</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables from customers, brokers, dealers and clearing
    organizations, less allowance for doubtful accounts of $1,151
    and $1,103</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>590,226</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>625,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables, less allowance for doubtful accounts of $38,879 and
    $53,418</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>418,788</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>329,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>444,498</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>381,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,070,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,953,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interests in securitizations&nbsp;&#150;
    available-for-sale</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>205,936</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Beneficial interest in Trusts&nbsp;&#150; trading</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>215,367</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>153,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage servicing rights</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>113,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>330,150</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>273,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>247,092</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>293,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,015,947</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>993,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>287,543</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>240,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <BR>
    <B><FONT color="#AADD6D">LIABILITIES AND STOCKHOLDERS&#146;
    EQUITY</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">LIABILITIES&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current portion of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>25,545</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>275,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable to customers, brokers and dealers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>950,684</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,065,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable, accrued expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>564,749</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>461,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued salaries, wages and payroll taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>318,644</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>349,298</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>413,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,208,920</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,497,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>923,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other noncurrent liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>430,919</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>369,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,562,912</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,412,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">COMMITMENTS AND CONTINGENCIES</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">STOCKHOLDERS&#146;
    EQUITY&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, no par, stated value $.01&nbsp;per share,
    800,000,000&nbsp;shares authorized, 217,945,398&nbsp;shares
    issued at April&nbsp;30, 2005 and 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,179</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Convertible preferred stock, no par, stated value $.01&nbsp;per
    share, 500,000&nbsp;shares authorized</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>600,568</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>68,718</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,188,785</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,695,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less treasury shares, at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,883,879</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,489,556</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,976,371</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,819,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="right" style="font-size: 8pt; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to consolidated financial statements.
</DIV>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    See note&nbsp;2.</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 47</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">CONSOLIDATED STATEMENTS OF CASH
FLOWS</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(Amounts in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="9">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">CASH FLOWS FROM OPERATING
    ACTIVITIES&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income to net cash provided by
    operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>183,867</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for bad debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>52,221</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for deferred taxes on income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(42,345</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(986</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29,944</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion of residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(137,610</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(186,466</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(146,343</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12,235</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Realized gain on sale of previously securitized residual
    interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(15,396</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(93,307</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions to trading securities&nbsp;&#150; residual interests
    in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(115,657</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(327,996</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(542,544</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from net interest margin transactions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>98,743</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>310,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>541,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions to mortgage servicing rights</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(137,510</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(84,274</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(65,345</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of mortgage servicing rights</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>84,191</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in beneficial interest in Trusts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(61,549</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,222</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(84,655</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax benefit from stock option exercises</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>10,961</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,139</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in assets and liabilities, net of acquisitions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents&nbsp;&#150; restricted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>28,519</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,186</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(286,069</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables for customers, brokers dealers and clearing
    organizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33,892</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(108,846</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>326,824</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(121,177</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(72,423</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage loans held for sale:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Originations and purchases</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(31,003,456</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,255,483</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,827,828</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales and principal repayments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>30,990,566</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,246,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,837,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(53,858</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable to customers, brokers and dealers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(115,109</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>203,099</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,507</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable, accrued expenses and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>113,419</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,563</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued salaries, wages and payroll taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>38,277</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(42,911</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(29,906</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,479</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>513,793</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>852,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>689,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">CASH FLOWS FROM INVESTING
    ACTIVITIES&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Available-for-sale securities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of available-for-sale securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,175</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,434</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,614</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received from residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,045</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash proceeds from sale of previously securitized residuals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>16,485</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of other available-for-sale securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9,752</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(209,458</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(123,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(148,706</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments made for business acquisitions, net of cash acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(37,621</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,865</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,408</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>36,562</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(58,410</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(127,386</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">CASH FLOWS FROM FINANCING
    ACTIVITIES&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(5,191,623</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,618,853</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,925,516</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,191,623</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,618,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,925,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of Senior Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(250,000</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of Senior Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>395,221</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on acquisition debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(25,664</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57,469</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(142,988</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(138,397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(530,022</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(519,862</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,102</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>119,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,564</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,572</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(427,915</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(565,625</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(377,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,468</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,452</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>440,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,072,745</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>913,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,100,213</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,072,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>913,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="right" style="font-size: 8pt; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to consolidated financial statements.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    See note&nbsp;2.</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 48</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">CONSOLIDATED STATEMENTS OF
STOCKHOLDERS&#146; EQUITY</FONT></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="38" align="right" nowrap>(Amounts in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="43" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>Convertible</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Accumulated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Common Stock</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Preferred Stock</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Additional</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Treasury Stock</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>



<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Paid-In</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Comprehensive</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Retained</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Total</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amount</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amount</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Capital</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Income (Loss)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Earnings</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amount</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Equity</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="44" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balances at April&nbsp;30,
    2002&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>468,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>44,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,767,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36,820</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(912,641</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,369,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prior year
    adjustment&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="41" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balances at April&nbsp;30,
    2002&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>468,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,773,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36,820</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(912,641</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,375,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net
    income&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized translation gain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in net unrealized gain on marketable
    securities&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,188</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,188</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued for:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>135,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>162,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,306</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,301</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ESPP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,624</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash dividends paid&nbsp;&#150; $.70&nbsp;per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="41" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balances at April&nbsp;30,
    2003&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>496,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,125,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(38,344</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,093,593</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,589,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net
    income&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized translation gain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in net unrealized gain on marketable
    securities&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,499</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,499</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued for:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>117,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ESPP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,805</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,633</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(519,862</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(519,862</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash dividends paid&nbsp;&#150; $.78&nbsp;per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(138,397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(138,397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="41" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balances at April&nbsp;30,
    2004&nbsp;<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217,945</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,695,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44,850</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,489,556</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,819,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unrealized translation gain</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,946</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,946</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in net unrealized gain on marketable securities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(6,439</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(6,439</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock-based compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,139</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44,139</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares issued for:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock options</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>15,892</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,479</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>124,263</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>140,155</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(5,718</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>176</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,098</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>380</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ESPP</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,190</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>151</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,338</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,528</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(11,281</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(530,022</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(530,022</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash dividends paid&nbsp;&#150; $.86&nbsp;per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(142,988</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(142,988</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="41" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balances at April&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>217,945</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,179</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>600,568</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>68,718</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3,188,785</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(52,325</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(1,883,879</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,976,371</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="41" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="44" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="right" style="font-size: 8pt; margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to consolidated financial statements.
</DIV>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    As previously reported.</TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP>&nbsp;</TD>
    <TD align="left">
    As restated, see note&nbsp;2.</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 49</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#AADD6D">NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>NOTE&nbsp;1:</B></TD>
    <TD align="left">
    <B>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">NATURE OF
OPERATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
operating subsidiaries provide a variety of financial services
to the general public, principally in the
U.S.&nbsp;Specifically, we offer tax return preparation;
origination, sale and servicing of non-prime and prime
mortgages; investment services through a broker-dealer; tax
preparation and related software; refund anticipation loans
offered by a third-party lending institution; and accounting,
tax and consulting services to business clients. Tax preparation
services are also provided in Canada, Australia and the United
Kingdom.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PRINCIPLES OF
CONSOLIDATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
consolidated financial statements include the accounts of the
Company and our wholly-owned and majority-owned subsidiaries.
All material intercompany transactions and balances have been
eliminated.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Some of our subsidiaries operate in regulated industries, and
their underlying accounting records reflect the policies and
requirements of these industries.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECLASSIFICATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Certain
reclassifications have been made to prior year amounts to
conform to the current year presentation. The previously
reported International Tax Operations segment has been
aggregated with U.S.&nbsp;Tax Operations in the Tax Services
segment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have modified our income statement to present aggregate costs
related to our revenue categories, rather than presenting
operating expenses by their natural classification. All direct
costs, both fixed and variable, of revenues are included in
these categories.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We reclassified $167.7&nbsp;million and $103.3&nbsp;million for
fiscal years 2004 and 2003, respectively, from interest income
to gain on sale, representing excess cash received from our
beneficial interest in Trusts. The beneficial interest in Trusts
is reported at fair value at each balance sheet date. Changes in
its fair value are included in current period earnings. The
excess cash received together with the and mark-to-market
adjustment for each period have been classified as gain on sale
of mortgage loans. We also increased gains on sales of mortgage
for fiscal years 2004 and 2003, related to the reclassification
of certain compensation and benefits expenses previously
presented net in revenues.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Deferred taxes and taxes payable have been reclassified for a
change in method of income tax reporting we initiated during
fiscal year 2004 resulting in a decrease to total assets and
liabilities of $101.3&nbsp;million at April&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
These reclassifications had no effect on the results of
operations or stockholders&#146; equity as previously reported.
Adjustments related to the restatement of previously issued
financial statements are detailed in note&nbsp;2.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MANAGEMENT
ESTIMATES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CASH AND CASH
EQUIVALENTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Cash
and cash equivalents include cash on hand, cash due from banks
and securities purchased under agreements to resell. For
purposes of the consolidated balance sheets and consolidated
statements of cash flows, all non-restricted highly liquid
instruments purchased with an original maturity of three months
or less are considered to be cash equivalents. Book overdrafts
included in accounts payable totaled $92.7&nbsp;million and
$104.8&nbsp;million at April&nbsp;30, 2005 and 2004,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our broker-dealer purchases securities under agreements to
resell and accounts for them as collateralized financings. The
securities are carried at the amounts at which the securities
will be subsequently resold, as specified in the respective
agreements. It is our policy to take possession of securities,
subject to resale agreements. The securities are revalued daily
and collateral added whenever necessary to bring market value of
the underlying collateral to a level equal to or greater than
the repurchase amount specified in the contracts.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CASH AND CASH EQUIVALENTS&nbsp;&#150;
RESTRICTED</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Cash
and cash equivalents&nbsp;&#150; restricted consists primarily
of securities purchased under agreements to resell and cash
which has been segregated in a special reserve account for the
exclusive benefit of customers pursuant to federal regulations
under Rule&nbsp;15c3-3 of the Securities Exchange Act of 1934.
Also included are cash balances held for outstanding commitments
to fund mortgage loans and funds held to pay payroll taxes on
behalf of customers.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MARKETABLE SECURITIES&nbsp;&#150;
TRADING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Certain
marketable debt securities held by our broker-dealer are
classified as trading, carried at market value based on quoted
prices and marked to market through the consolidated income
statements. Certain residual interests in securitizations of
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 50</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
mortgage loans are classified as trading based on
management&#146;s intentions, carried at market value based on
discounted cash flow models and marked to market through the
consolidated income statements. These securities are included in
prepaid expenses and other current assets on the consolidated
balance sheets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECEIVABLES FROM CUSTOMERS, BROKERS,
DEALERS AND CLEARING ORGANIZATIONS AND ACCOUNTS PAYABLE TO
CUSTOMERS, BROKERS AND
DEALERS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Customer
receivables and payables consist primarily of amounts due on
margin and cash transactions. These receivables are
collateralized by customers&#146; securities held, which are not
reflected in the accompanying consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Receivables from brokers are collateralized by securities in our
physical possession, or on deposit with us, or receivables from
customers or other brokers. The allowance for doubtful accounts
represents an amount considered by management to be adequate to
cover potential losses.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Securities borrowed and securities loaned transactions are
generally reported as collateralized financing. These
transactions require deposits of cash and/or collateral with the
lender. Securities loaned consist of securities owned by
customers that were purchased on margin. When loaning
securities, cash collateral approximately equal to the value of
the securities loaned is received. The amount of cash collateral
is adjusted, as required, for market fluctuations in the value
of the securities loaned. Interest rates paid on the cash
collateral fluctuate as short-term interest rates change.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RECEIVABLES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Receivables
consist primarily of Business Services&#146; accounts receivable
and mortgage loans held for sale. Mortgage loans held for sale
are carried at the lower of aggregate cost or market value as
determined by outstanding commitments from investors or current
investor-yield requirements calculated on an aggregate basis.
The allowance for doubtful accounts requires management&#146;s
judgment regarding current market indicators concerning general
economic trends to establish an amount considered by management
to be adequate to cover potential losses related to our
non-mortgage loan receivable balance.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RESIDUAL INTERESTS IN
SECURITIZATIONS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Residual
interests classified as available-for-sale securities are
carried at market value based on discounted cash flow models
with unrealized gains included in other comprehensive income.
The residual interests are accreted over the estimated life of
the securitization structure. If the carrying value exceeds
market value, the residual is written down to market value with
the realized loss, net of any unrealized gain previously
recorded in other comprehensive income, included in gains on
sales of mortgage assets in the consolidated income statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We estimate future cash flows from these residuals and value
them using assumptions we believe to be consistent with those of
unaffiliated third-party purchasers. We estimate the fair value
of residuals by computing the present value of the excess of the
weighted-average interest rate on the loans sold plus estimated
collection of prepayment penalty fee income over the sum of
(1)&nbsp;the coupon on the securitization bonds, (2)&nbsp;a
contractual servicing fee paid to the servicer of the loans,
which is usually Option One, (3)&nbsp;expected losses to be
incurred on the portfolio of the loans sold, as projected to
occur, over the lives of the loans, (4)&nbsp;fees payable to the
trustee and insurer, if applicable, and (5)&nbsp;payments made
to investors on NIM bonds, if applicable. The residual valuation
takes into consideration the current and expected interest rate
environment, including projected changes in future interest
rates and the timing of such changes. Prepayment and loss
assumptions used in estimating the cash flows are based on
evaluation of the actual experience of the servicing portfolio,
the characteristics of the applicable loan portfolio, as well as
also taking into consideration the current and expected economic
and interest rate environment and its expected impact. The
estimated cash flows are discounted at an interest rate we
believe an unaffiliated third-party purchaser would require as a
rate of return on a financial instrument with a similar risk
profile. We evaluate, and adjust if necessary, the fair values
of residual interests quarterly by updating the actual
performance and expected assumptions in the discounted cash flow
models based on current information and events and by
estimating, or validating with third-party experts, if
necessary, what a market participant would use in determining
the current fair value. To the extent that actual excess cash
flows are different from estimated excess cash flows, the fair
value of the residual would increase or decrease.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">BENEFICIAL INTEREST IN
TRUSTS&nbsp;&#150;
TRADING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
beneficial interest in Trusts is recorded as a result of daily
non-prime whole loan sales to Trusts. The beneficial interest is
classified as a trading security, based on management&#146;s
intentions, is carried at market value and is marked to market
through the consolidated income statements. Market value is
calculated as the present value of future cash flows, limited by
the ultimate expected outcome from the disposition of the loans
by the Trusts.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MORTGAGE SERVICING
RIGHTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;MSRs
retained in the sale of mortgage loans are recorded at allocated
carrying amounts based on relative fair values at the time of
the sale. The MSRs are carried at the lower of cost or fair
value. Fair values of MSRs are determined based on the present
value of estimated future cash flows related to servicing loans.
Assumptions used in estimating the value of MSRs include market
discount rates and
</DIV>

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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 51</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
anticipated prepayment speeds including default, estimated
ancillary fee income and other economic factors. The prepayment
speeds are estimated using our historical experience and
third-party market sources. The MSRs are amortized to earnings
in proportion to, and over the period of, estimated net future
servicing income. MSRs are reviewed quarterly for potential
impairment. Impairment is assessed based on the fair value of
each risk stratum. MSRs are stratified by the fiscal year of the
loan sale date, which approximates date of origination, and loan
type, usually 6-month adjustable, 2- to 3-year adjustable and
fixed rate.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">PROPERTY AND
EQUIPMENT</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Buildings
and equipment are initially recorded at cost and are depreciated
over the estimated useful life of the assets using the
straight-line method. Leasehold improvements are initially
recorded at cost and are amortized over the lesser of the term
of the respective lease or the estimated useful life, using the
straight-line method. Estimated useful lives are 15 to
40&nbsp;years for buildings, 3 to 5&nbsp;years for computers and
other equipment and up to 8&nbsp;years for leasehold
improvements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We capitalize certain allowable costs associated with software
developed or purchased for internal use. These costs are
amortized over 36&nbsp;months using the straight-line method.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INTANGIBLE ASSETS AND
GOODWILL</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
account for intangible assets and goodwill in accordance with
Statement of Financial Accounting Standards No.&nbsp;142,
&#147;Goodwill and Other Intangible Assets,&#148;
(&#147;SFAS&nbsp;142&#148;). We test goodwill and other
indefinite life intangible assets for impairment annually or
more frequently, whenever events occur or circumstances change
which would, more likely than not, reduce the fair value of a
reporting unit below its carrying value. We have defined our
reporting units as our operating segments or one level below.
The first step of the impairment test is to compare the
estimated fair value of the reporting unit to its carrying
value. If the carrying value is less than fair value, no
impairment exists. If the carrying value is greater than fair
value, a second step is performed to determine the fair value of
goodwill and the amount of impairment loss, if any. These tests
were completed and no indications of goodwill impairment were
found during fiscal year 2005 or 2004. During fiscal year 2003,
impairment charges of $108.8&nbsp;million and $13.5&nbsp;million
were recorded in the Investment Services and Business Services
segments, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In addition, long-lived assets, including intangible assets with
finite lives, are assessed for impairment whenever events or
circumstances indicate the carrying value may not be fully
recoverable by comparing the carrying value to future
undiscounted cash flows. To the extent there is impairment, an
analysis is performed based on several criteria, including, but
not limited to, revenue trends, discounted operating cash flows
and other operating factors to determine the impairment amount.
No material impairment adjustments to other intangible assets or
other long-lived assets were made during the three-year period
ended April&nbsp;30, 2005. The weighted-average life of
intangible assets with finite lives is nine years.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMMERCIAL
PAPER</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Short-term
borrowings are used to finance temporary liquidity needs and
various financial activities. There was no commercial paper
outstanding at April&nbsp;30, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">LITIGATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Our
policy is to routinely assess the likelihood of any adverse
judgments or outcomes related to legal matters, as well as
ranges of probable losses. A determination of the amount of the
reserves required, if any, for these contingencies is made after
thoughtful analysis of each known issue and an analysis of
historical experience in accordance with Statement of Financial
Accounting Standards No.&nbsp;5, &#147;Accounting for
Contingencies,&#148; and related pronouncements. We record
reserves related to certain legal matters for which it is
probable that a loss has been incurred and the range of such
loss can be estimated. With respect to other matters, management
has concluded that a loss is only reasonably possible or remote
and, therefore, no liability is recorded.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INCOME
TAXES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
account for income taxes in accordance with Statement of
Financial Accounting Standards No.&nbsp;109, &#147;Accounting
for Income Taxes&#148; (&#147;SFAS&nbsp;109&#148;).
SFAS&nbsp;109 requires us to record deferred income tax assets
and liabilities for future tax consequences attributable to
differences between the financial statement carrying value of
existing assets and liabilities and their respective tax bases.
Our deferred tax assets include tax loss and credit
carryforwards and are reduced by a valuation allowance if, based
on available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Our current deferred tax assets are included in prepaid expenses
and other current assets on the consolidated balance sheets.
Noncurrent deferred tax assets are included in other assets on
our consolidated balance sheets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We file a consolidated Federal tax return on a calendar year
basis.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">REVENUE
RECOGNITION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Service
revenues consist primarily of fees for preparation and filing of
tax returns, both in offices and through our online programs,
fees associated with our POM guarantee program, mortgage
loan-servicing fees, fees for consulting services and brokerage
commissions. Generally, service revenues are recorded in the
period in which the service is performed. Retail and online tax
preparation revenues are recorded when a completed return is
filed or accepted by the customer. POM revenues are deferred and
recognized over the
</DIV>

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    <TD width="1%"></TD>
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<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 52</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
term of the guarantee based upon historic and actual payment of
claims. Revenues for services rendered in connection with the
Business Services segment are recognized on a time and materials
basis. Investment Services&#146; production revenue is
recognized on a trade-date basis.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Gains on sales of mortgage assets are recognized when control of
the assets is surrendered (when loans are sold to Trusts) and
are based on the difference between cash proceeds and the
allocated cost of the assets&nbsp;sold.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Interest income consists primarily of interest earned on
customer margin loan balances and mortgage loans, and accretion
income. Interest income on customer margin loan balances is
recognized daily as earned based on current rates charged to
customers for their margin balance. Accretion income represents
interest earned over the life of residual interests using the
effective interest method.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Product and other revenues include royalties, RAL participation
revenues and sales of software products. Franchise royalties,
which are based upon the contractual percentages of franchise
revenues, are recorded in the period in which the franchise
provides the service. RAL participation revenue is recorded when
we purchase our participation interest in the RAL. Software
revenues consist mainly of tax preparation software and other
personal productivity software. Sales of software are recognized
when the product is sold to the end&nbsp;user.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Revenue recognition is evaluated separately for each unit in
multiple-deliverable arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">ADVERTISING
EXPENSE</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Advertising
costs are expensed the first time the advertisement is run.
Total advertising costs recorded in fiscal year 2005, 2004 and
2003 totaled $195.4&nbsp;million, $188.3&nbsp;million and
$150.8&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">FOREIGN CURRENCY
TRANSLATION</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Assets
and liabilities of foreign subsidiaries are translated into
U.S.&nbsp;dollars at exchange rates prevailing at the end of the
year. Translation adjustments are recorded as a separate
component of other comprehensive income in stockholders&#146;
equity. Revenue and expense transactions are translated at the
average of exchange rates in effect during the&nbsp;period.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">COMPREHENSIVE
INCOME</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Statement
of Financial Accounting Standards No.&nbsp;130, &#147;Reporting
Comprehensive Income,&#148; establishes standards for reporting
and displaying comprehensive income and its components in
stockholders&#146; equity. Our comprehensive income is comprised
of net income, foreign currency translation adjustments and the
change in net unrealized gains or losses on available-for-sale
marketable securities. Included in stockholders&#146; equity at
April&nbsp;30, 2005 and 2004, the net unrealized holding gain on
available-for-sale securities was $71.6&nbsp;million and
$78.0&nbsp;million, respectively, and the foreign currency
translation adjustment was $(2.8)&nbsp;million and
$(11.8)&nbsp;million, respectively. The net unrealized holding
gain on available-for-sale securities relates primarily to
residual interests in securitizations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">STOCK-BASED COMPENSATION
PLANS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Effective
May&nbsp;1, 2003, we adopted the fair value recognition
provisions of Statement of Financial Accounting Standards
No.&nbsp;123, &#147;Accounting for Stock-Based
Compensation&#148; (&#147;SFAS&nbsp;123&#148;), under the
prospective transition method as described in Statement of
Financial Accounting Standards No.&nbsp;148, &#147;Accounting
for Stock-Based Compensation&nbsp;&#150; Transition and
Disclosure&#148; (&#147;SFAS&nbsp;148&#148;). We recognize
stock-based compensation expense for the issuance of stock
options, restricted shares and our ESPP on a straight-line basis
over the vesting period. Had compensation cost for all
stock-based compensation plan awards been determined in
accordance with the fair value accounting method prescribed
under SFAS&nbsp;123, our net income and earnings per share would
have been as&nbsp;follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Stock-based compensation expense included in reported net
    income, net of taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>28,819</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based compensation expense determined under
    fair value&nbsp;method for all awards, net&nbsp;of&nbsp;taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(39,544</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30,662</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,025</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>625,132</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>696,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>457,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As presented</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As presented</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.71</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">DERIVATIVE
ACTIVITIES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;We
record derivative instruments as assets or liabilities, measured
at fair value. The recognition of gains or losses resulting from
changes in the values of those derivative instruments is based
on the use of each derivative instrument and whether it
qualifies for hedge accounting.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We use financial instruments to mitigate interest rate risk and
loan commitments related to mortgage loans which will be held
for sale. We use forward loan sale commitments, interest rate
swaps and interest rate caps throughout the year to manage our
interest rate risk. We do not enter into derivative transactions
for speculative or trading purposes. None of our derivative
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 53</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
instruments qualify for hedge accounting treatment as of
April&nbsp;30, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">DISCLOSURE REGARDING CERTAIN FINANCIAL
INSTRUMENTS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
carrying values reported in the balance sheet for cash
equivalents, receivables, accounts payable, accrued liabilities
and the current portion of long-term debt approximate fair
market value due to the relative short-term nature of the
respective instruments. Residual interests and beneficial
interests in Trusts are recorded at estimated fair value as
discussed above. See note&nbsp;6 for the fair value of MSRs and
note&nbsp;10 for fair value of long-term&nbsp;debt.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">NEW ACCOUNTING
STANDARDS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;In
December 2004, Statement of Financial Accounting Standards
No.&nbsp;123 (revised 2004), &#147;Share-Based Payment,&#148;
(&#147;SFAS&nbsp;123R&#148;) was issued. SFAS&nbsp;123R requires
all entities to recognize the cost of employee services received
in exchange for awards of equity instruments based on the
grant-date fair value of those awards. Compensation expense must
be recognized for the unvested portions of all awards
outstanding as of the date of adoption. The provisions of this
standard were delayed by the SEC and will be effective as of the
beginning of our fiscal year 2007. We are currently evaluating
what effect the adoption of SFAS&nbsp;123R will have on our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In August 2003, we adopted Emerging Issues Task Force Issue
No.&nbsp;00-21, &#147;Revenue Arrangements with Multiple
Deliverables&#148; (&#147;EITF&nbsp;00-21&#148;).
EITF&nbsp;00-21 requires consideration received in connection
with arrangements involving multiple revenue generating
activities be measured and allocated to each separate unit of
accounting. Revenue recognition is determined separately for
each unit of accounting within the arrangement. EITF&nbsp;00-21
impacts revenue recognition related to tax preparation in our
premium tax offices where POM guarantees are included in the
price of a completed tax return. Prior to the adoption of
EITF&nbsp;00-21, revenues related to POM guarantees at premium
offices were recorded in the same period as tax preparation
revenues. Beginning May&nbsp;1, 2003, revenues related to POM
guarantees are now initially deferred and recognized over the
guarantee period in proportion to POM claims paid. As a result
of the adoption of EITF&nbsp;00-21, we recorded a cumulative
effect of a change in accounting principle of $6.4&nbsp;million,
net of a tax benefit of $4.0&nbsp;million, as of May&nbsp;1,
2003.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Revenues recognized during fiscal year 2004, which were
initially recognized in prior periods and recorded as part of
the cumulative effect of a change in accounting principle,
totaled $36.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Pro forma results, as if EITF&nbsp;00-21 had been applied during
fiscal year 2003, are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>475,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The Financial Accounting Standards Board (&#147;FASB&#148;)
intends to reissue the exposure draft, &#147;Qualifying Special
Purpose Entities and Isolation of Transferred Assets, an
Amendment of FASB Statement No.&nbsp;140,&#148; during the third
quarter of calendar year 2005. The purpose of the proposal is to
provide more specific guidance on the accounting for transfers
of financial assets to a&nbsp;QSPE.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Provisions in the first exposure draft, as well as tentative
decisions reached by the FASB during its deliberations, may
require us to consolidate our current QSPEs (the Trusts)
established in our Mortgage Services segment. As of
April&nbsp;30, 2005, the Trusts had both assets and liabilities
of $6.7&nbsp;billion. The provisions of the exposure draft are
subject to FASB due process and are subject to change. We will
continue to monitor the status of the exposure draft, and
consider changes, if any, to current structures as a result of
the proposed rules.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The estimated impact of these new accounting standards reflects
current views. There may be material differences between these
estimates and the actual impact of these standards.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE 2: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL
STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
On June&nbsp;7, 2005, management and the Audit Committee of the
Board of Directors determined that restatement of our previously
issued consolidated financial statements, including financial
statements for the nine months ended January&nbsp;31, 2005 and
for the fiscal years ended April&nbsp;30, 2004 and 2003 and all
related interim periods, was appropriate as a result of the
errors noted below.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The restatements did not have any impact on our previously
reported service revenues or on our compliance with any
financial covenant under our lines of credit or other debt
instruments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The restatement is a result of the following items. All amounts
listed are pretax, unless otherwise noted.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    An error in calculating the gain on sale of residual interests
    in fiscal year 2003, resulting in an overstatement in gain on
    sales of mortgage assets for that year of $37.6&nbsp;million.
    This error was corrected by deferring a portion of the gain on
    sale of residual interests as of the transaction date in fiscal
    year</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 54</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    2003 and recognizing revenue from the sale as interest income
    from accretion of residual interests in subsequent periods.
    Interest income from accretion increased $18.4&nbsp;million and
    $1.2&nbsp;million in fiscal years 2004 and 2003, respectively.
    This correction also decreased impairments of residual interests
    $4.6&nbsp;million and increased comprehensive income
    $14.2&nbsp;million in fiscal year 2004.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    An error in the calculation of an incentive compensation accrual
    at our Mortgage Services segment as of April&nbsp;30, 2004. This
    error resulted in an understatement of compensation expense in
    fiscal year 2004 of $12.1&nbsp;million.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    An error in accounting for leased properties related to rent
    holidays and mandatory rent escalation in our Tax Services,
    Mortgage Services and Investment Services segments. We
    historically recognized rent expense on a cash basis. We
    determined that the lease term should have commenced on the date
    we took possession of the leased space and the expense
    calculated on a straight-line basis over the lease term. Rent
    expense was understated in fiscal years 2004 and 2003 by
    $1.3&nbsp;million and $3.3&nbsp;million, respectively. The
    cumulative overstatement of retained earnings prior to fiscal
    year 2003 arising from this error was $4.9&nbsp;million.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    An error from the capitalization of certain branch office costs
    at our Investment Services segment, which should have been
    expensed as incurred. This error resulted in an understatement
    of occupancy expenses and an overstatement of depreciation
    expense and capital expenditures of a net understatement of
    operating expenses of $3.5&nbsp;million in fiscal year 2004 and
    a net $2.1&nbsp;million in fiscal year 2003, which is included
    in selling, general and administrative expenses. The cumulative
    overstatement of retained earnings prior to fiscal year 2003
    arising from this error was $0.2&nbsp;million.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Errors related to accounting for acquisitions at our Business
    Services and Investment Services segments, the largest of which
    was the acquisition of OLDE in fiscal year 2000. Deferred taxes
    were not provided on the dates of acquisition for the book/tax
    basis differences for certain intangible assets. Additionally,
    an incorrect life has been used to amortize customer
    relationships for OLDE since the date of acquisition. As a
    result of these errors, goodwill was understated by
    $34.0&nbsp;million at April&nbsp;30, 2004 and intangible assets
    were overstated by $32.4&nbsp;million. Additionally, deferred
    tax liabilities were understated by $55.7&nbsp;million at
    April&nbsp;30, 2004. Amortization of customer relationships was
    understated by $7.3&nbsp;million in fiscal years 2004 and 2003,
    which is included in selling, general and administrative
    expenses. Our provision for income taxes was overstated by
    $15.2&nbsp;million and $13.4&nbsp;million in fiscal years 2004
    and 2003, respectively, related to this error.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
&nbsp;&nbsp;The cumulative understatement of retained earnings
prior to fiscal year 2003 arising from this error was
$14.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">
&nbsp;&nbsp;Upon determining the understatement of goodwill and
the resulting change in the carrying values of the affected
reporting units, we revisited each of the periods in which
goodwill impairment testing was performed. This resulted in
additional nondeductible impairment charges of
$84.8&nbsp;million related to the acquisition of OLDE and
$1.7&nbsp;million related to a reporting unit within the
Business Services segment in fiscal year 2003.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Restatement adjustments pertaining to income taxes relate
    primarily to purchase accounting restatement adjustments
    described above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Notes&nbsp;4, 5, 6, 7, 8, 11, 15, 16, 17, 20, 21 and 22 have
been restated to reflect the above described adjustments.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 55</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The following is a summary of the impact of the restatement on
our consolidated statements of income and comprehensive income
for the fiscal years ended April&nbsp;30, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="18%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD align="left" nowrap>Year&nbsp;Ended&nbsp;April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Previously</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Previously</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="9">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Reported<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Reported<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gains on sales of mortgage assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>913,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>918,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>864,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(37,574</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>827,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>211,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,179</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,224,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,767,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36,395</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,787,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,794,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,623,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,625,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>375,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>380,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>295,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>836,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>848,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>755,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>760,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total operating expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,999,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,023,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,710,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>99,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,809,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,225,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,182</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,224,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,056,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(135,640</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,164,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,182</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>987,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(131,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>459,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,534</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>407,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29,064</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>697,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>580,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(102,449</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(0.57</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.56</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Reclassification adjustment for gains included in income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(95,150</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(14,235</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(109,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(139,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(117,073</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>718,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,883</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>716,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>572,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(79,956</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>492,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Amounts presented &#147;as previously reported&#148; have been
    reclassified to conform with current year presentation. See
    discussion of reclassifications in note&nbsp;1.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The following is a summary of the impact of the restatement on
our consolidated balance sheet as of April&nbsp;30, 2004:
</DIV>

<DIV align="right" style="font-size: 10pt;">

</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" nowrap>April 30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Previously</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="9">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Reported<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>325,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(32,352</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>293,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>959,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>993,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>279,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,917</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>273,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>308,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(68,333</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>240,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,295,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(62,736</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued salaries, wages and payroll taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>268,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>405,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>413,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other noncurrent liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>382,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,399</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>369,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,398,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,412,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,258</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,781,368</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,452</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,695,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,897,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(77,194</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,819,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,295,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(62,736</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Amounts presented &#147;as previously reported&#148; have been
    reclassified to conform with current year presentation. See
    discussion of reclassifications in note&nbsp;1.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 56</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The following is a summary of the impact of the restatement on
our consolidated statements of cash flows for fiscal years ended
April&nbsp;30, 2004 and 2003:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="18%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="24" align="right" nowrap>(in 000s)</TD><TD></TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD align="left" nowrap>Year&nbsp;Ended&nbsp;April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Previously</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Previously</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="9">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Reported<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Reported<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>697,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>580,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(102,449</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>172,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>169,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for deferred taxes on income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,445</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(986</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,518</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29,944</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion of residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(168,029</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(18,436</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(186,465</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(145,165</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,178</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(146,343</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,598</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Realized gain on sale of previously securitized residual
    interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,689</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(130,881</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(93,307</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable, accrued expenses and deposits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(105,737</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(104,563</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued salaries, wages and payroll taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(42,772</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(139</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(42,911</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>99,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>856,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,747</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>852,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>691,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,191</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>689,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(127,573</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(123,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150,897</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(148,706</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(131,133</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(127,386</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>127,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Amounts presented &#147;as previously reported&#148; have been
    reclassified to conform with current year presentation. See
    discussion of reclassifications in note&nbsp;1.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The restatement of our consolidated statement of
stockholders&#146; equity resulted in an increase of
$5.6&nbsp;million to retained earnings as of April&nbsp;30, 2002.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 57</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;3: BUSINESS COMBINATIONS AND DISPOSALS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Significant acquisitions during fiscal years 2005, 2004 and 2003
are as follows. Results for each acquisition are included since
the date of acquisition.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Business</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Asset Acquired</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Estimated Life</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Asset Value at Acquisition</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Fiscal year 2005&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-accounting firm Business Services acquisitions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Property and equipment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,497</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Goodwill</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9,666</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Customer relationships</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7,730</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Noncompete agreements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Weighted average life</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>19,993</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Fiscal year 2004&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Former major franchise territories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Property and equipment</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Goodwill</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>205,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Customer relationships</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Noncompete agreements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Weighted average life</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>243,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting firms</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Goodwill</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Customer relationships</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Noncompete agreements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>747</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Weighted average life</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">Fiscal year 2003&nbsp;...</FONT></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting firms</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Goodwill</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Customer relationships</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Noncompete agreements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Weighted average life</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
During fiscal year 2005, our Business Services segment acquired
six businesses. Cash payments related to these acquisitions
totaled $19.5&nbsp;million, with additional cash payments of
$0.1&nbsp;million over the next five years. Goodwill recognized
in these transactions is included in the Business Services
segment and all but $3.8&nbsp;million is deductible for
tax&nbsp;purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2004, we made payments of $243.2&nbsp;million
related to the acquisition of primarily assets and stock in the
franchise territories of ten former major franchisees. The
customer relationships will be amortized based on estimated
customer retention over ten years. The noncompete agreements
will be amortized on a straight-line basis over three years.
Goodwill recognized in these transactions is included in the Tax
Services segment and all but $3.9&nbsp;million is deductible for
tax&nbsp;purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2004, we acquired three accounting firms.
Cash payments related to these acquisitions totaled
$6.2&nbsp;million, with additional cash payments of
$1.0&nbsp;million over the next five years. The purchase
agreements also provide for possible future contingent
consideration of approximately $3.0&nbsp;million. Goodwill
recognized in these transactions is deductible for tax purposes
and is included in the Business Services&nbsp;segment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2003, we acquired two accounting firms. Cash
payments related to these acquisitions totaled
$2.6&nbsp;million, with additional cash payments of
$2.8&nbsp;million over the next five years. The purchase
agreements also provide for possible future contingent
consideration of approximately $0.3&nbsp;million. Goodwill
recognized in these transactions was $2.4&nbsp;million, which is
deductible for tax purposes and is included in the Business
Services&nbsp;segment.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal years 2005, 2004 and 2003, we made other
acquisitions which were accounted for as purchases with cash
payments totaling $14.4&nbsp;million, $7.9&nbsp;million and
$3.0&nbsp;million, respectively. Their operations, which are not
material, are included in the consolidated income statements
since the date of&nbsp;acquisition.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 58</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;4: EARNINGS PER SHARE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Basic earnings per share is computed using the weighted-average
number of common shares outstanding. The dilutive effect of
potential common shares outstanding is included in diluted
earnings per share. The computations of basic and diluted
earnings per share before change in accounting principle are
as&nbsp;follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic weighted average common shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>165,806</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>177,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilutive potential shares from stock options and restricted stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Convertible preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilutive weighted average common shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>168,813</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Diluted earnings per share excludes the impact of common shares
issuable upon the lapse of certain restrictions or the exercise
of options to purchase 0.6&nbsp;million, 2.4&nbsp;million, and
2.6&nbsp;million shares of stock for 2005, 2004 and 2003,
respectively, because the options&#146; exercise prices were
greater than the average market price of the common shares and
therefore, the effect would be&nbsp;antidilutive.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;5: MARKETABLE SECURITIES AVAILABLE-FOR-SALE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The amortized cost and market value of marketable securities
classified as available-for-sale at April&nbsp;30, 2005 and 2004
are summarized&nbsp;below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="30" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="34" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap>2004 (Restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="34" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amortized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Unrealized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Unrealized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Market</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amortized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Unrealized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Unrealized</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Market</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Cost</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gains</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Losses<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Value</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Cost</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gains</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Losses<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Value</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Municipal bonds</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>9,797</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>172</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(1</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>9,968</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(78</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,250</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>308</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(129</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,429</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(82</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>90,525</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>115,411</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>205,936</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="33" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>104,572</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>115,891</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(130</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>220,333</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>98,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>126,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(160</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>224,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="33" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="35" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 2pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    Gross unrealized losses have been in a continuous loss position
    for less than 12&nbsp;months.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 5pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
We monitor our available-for-sale investment portfolio for
impairment and consider many factors in determining whether the
impairment is deemed to be other-than-temporary. These factors
include, but are not limited to, the length of time the security
has had a market value less than the cost basis, the severity of
the loss, our intent and ability to hold the security for a
period of time sufficient for a recovery in value, recent events
specific to the issuer or industry, external credit ratings and
recent downgrades in such&nbsp;ratings.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Proceeds from the sales of available-for-sale securities were
$26.2&nbsp;million, $68.8&nbsp;million and $156.6&nbsp;million
during fiscal years 2005, 2004 and 2003, respectively. Gross
realized gains on those sales during fiscal years 2005, 2004 and
2003 were $15.8&nbsp;million, $41.8&nbsp;million and
$93.9&nbsp;million, respectively; gross realized losses were
$0.3&nbsp;million, $0.1&nbsp;million and
$0.7&nbsp;million,&nbsp;respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Contractual maturities of available-for-sale debt securities at
April&nbsp;30, 2005 occur at varying dates over the next five to
ten years. Because expected maturities differ from contractual
maturities due to the issuers&#146; rights to prepay certain
obligations
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 59</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
or the seller&#146;s rights to call certain obligations, the
first call date, put date or auction date for municipal bonds
and notes is considered the contractual maturity&nbsp;date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;6: MORTGAGE BANKING ACTIVITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We originate mortgage loans and sell most non-prime loans the
same day the loans are funded to Trusts. These Trusts meet the
criteria of QSPEs and are therefore not consolidated. The sale
is recorded in accordance with Statement of Financial Accounting
Standards No.&nbsp;140, &#147;Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities&#148; (&#147;SFAS&nbsp;140&#148;). The Trusts
purchase the loans from us using five warehouse facilities we
arrange. As a result of the whole loan sales to the Trusts, we
remove the mortgage loans from our balance sheet and record the
gain on the sale, cash and a beneficial interest in Trusts,
which represents the ultimate expected outcome from the
disposition of the loans. The beneficial interest in Trusts was
$215.4&nbsp;million and $153.8&nbsp;million at April&nbsp;30,
2005 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Trusts, as directed by their third-party beneficial interest
holders, either sell the loans directly to third-party investors
or back to us to pool the loans for securitization. The decision
to complete a whole loan sale or a securitization is dependent
on market conditions. If the Trusts choose to sell the mortgage
loans, we receive cash for our beneficial interest in Trusts. In
a securitization transaction, the Trusts transfer the loans to
one of our consolidated subsidiaries, and we transfer our
beneficial interest in Trusts and the loans to a securitization
trust. The securitization trust meets the definition of a QSPE
and is therefore not consolidated. The securitization trust
issues bonds, which are supported by the cash flows from the
pooled loans, to third-party investors. We retain an interest in
the loans in the form of a residual interest and usually assume
the first risk of loss for credit losses in the loan pool. As
the cash flows of the underlying loans and market conditions
change, the value of our residual interest may also change,
resulting in either additional unrealized gains or impairment of
the value of the residual interests. These residual interests
are classified as trading securities. We held no trading
residual interests as of April&nbsp;30, 2005 and 2004, as all
trading residuals had been securitized.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
To accelerate the cash flows from our residual interests, we
securitize the majority of our residual interests in NIM
transactions. In a NIM transaction, the residual interests are
transferred to another QSPE (&#147;NIM trust&#148;), which then
issues bonds to third-party investors. The proceeds from the
bonds are returned to us as payment for the residual interests.
The bonds are secured by the pooled residual interests and are
obligations of the NIM trust. We retain a subordinated interest
in the NIM trust, and receive cash flows on our residual
interest generally after the bonds issued to the third-party
investors are paid in full. Residual interests retained from NIM
securitizations may also be bundled and sold in a subsequent
securitization. These residual interests are classified as
available-for-sale securities. See note&nbsp;5.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Prime mortgage loans are sold in whole loan sales, servicing
released, to third-party buyers.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Activity related to residual interests in securitizations
consists of the following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>210,973</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>264,337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions (resulting from NIM transactions)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>16,914</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(136,045</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(193,606</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received on sales of residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(16,485</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53,391</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accretion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>137,610</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairments of fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(12,235</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,063</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in unrealized holding gains arising during the period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,204</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>205,936</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>210,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We sold $31.0&nbsp;billion and $23.2&nbsp;billion of mortgage
loans in whole loan sales to the Trusts and other buyers during
the years ended April&nbsp;30, 2005 and 2004, respectively.
Gains totaling $772.1&nbsp;million and $915.6&nbsp;million were
recorded on these sales, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Residual interests initially valued at $115.7&nbsp;million and
$328.0&nbsp;million were securitized in NIM transactions during
the years ended April&nbsp;30, 2005 and 2004, respectively. Net
cash proceeds of $98.7&nbsp;million and $310.4&nbsp;million were
received from the NIM transactions for the years ended
April&nbsp;30, 2005 and 2004, respectively. Total net additions
to residual interests for the years ended April&nbsp;30, 2005
and 2004 were $16.9&nbsp;million and $9.0&nbsp;million,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Cash flows from the residual interests of $136.0&nbsp;million
and $193.6&nbsp;million were received from the securitization
trusts for the years ended April&nbsp;30, 2005 and 2004,
respectively. An additional $16.5&nbsp;million and
$53.4&nbsp;million was received during fiscal years 2005 and
2004, respectively, as a result of the sale of previously
securitized residuals, as discussed below. Cash received on the
residual interests is included in investing activities on the
consolidated statements of cash flows.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 60</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2005, we completed sales of previously
securitized residual interests and recorded gains of
$15.4&nbsp;million. We received cash proceeds of
$16.5&nbsp;million from the transactions and retained a
$21.5&nbsp;million residual interest. These sales accelerate
cash flows from the residual interests, effectively realizing
previously recorded unrealized gains included in other
comprehensive income.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2004, we completed sales of previously
securitized residual interests and recorded gains of
$40.7&nbsp;million. We received cash proceeds of
$53.4&nbsp;million from the transaction and retained a residual
interest of $1.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Residual interests are classified as available-for-sale
securities and are therefore reported at fair value. Gross
unrealized holding gains represent the write-up of residual
interests as a result of lower interest rates, loan losses or
loan prepayments to date than most recently projected in our
valuation models.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Aggregate net unrealized gains on residual interests, which had
not yet been accreted into income, totaled $115.4&nbsp;million
and $125.9&nbsp;million at April&nbsp;30, 2005 and 2004,
respectively. These unrealized gains are recorded net of
deferred taxes in other comprehensive income, and may be
recognized in income in future periods either through accretion
or upon further securitization of the related residual interest.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Included in prepaid expenses and other current assets on our
consolidated balance sheets as of April&nbsp;30, 2005 and 2004,
is $231.0&nbsp;million and $212.3&nbsp;million, respectively, in
default advances, escrow advances and principal and interest
advances related to the servicing of non-prime loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Activity related to mortgage servicing rights consists of the
following:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>113,821</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>99,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>137,510</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(84,191</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(69,718</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairments of fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(526</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>113,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Estimated amortization of MSRs for fiscal years 2006, 2007,
2008, 2009 and 2010 is $89.7&nbsp;million, $49.8&nbsp;million,
$20.0&nbsp;million, $5.8&nbsp;million and $1.3&nbsp;million,
respectively. The carrying value of MSRs approximates fair value
at April&nbsp;30, 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The key assumptions we used to originally estimate the cash
flows and values of our residual interests are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated credit losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><B>2.72%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3.63%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3.60%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Discount rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap><B>25.00%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>16.25%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>13.03%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Variable returns to third-party beneficial interest holders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="center" valign="top">
    <BR>
    <B>LIBOR forward curve at valuation date</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The key assumptions we used to estimate the cash flows and
values of our residual interests and MSRs at April&nbsp;30 are
<BR>
 as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated credit losses&nbsp;&#150; residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.03%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.16%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Discount rate&nbsp;&#150; residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21.01%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19.09%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Discount rate&nbsp;&#150; MSRs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12.80%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.80%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Variable returns to third-party beneficial interest&nbsp;holders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="center" valign="bottom">
    <BR>
    <B>LIBOR forward curve at valuation date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We originate both adjustable and fixed rate mortgage loans. A
key assumption used to estimate the cash flows and values of the
residual interests is average annualized prepayment speeds.
Prepayment speeds include voluntary prepayments, involuntary
prepayments and scheduled principal payments. Prepayment rate
assumptions are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>Months Outstanding Without</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>Prepayment Penalty</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Prior to</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Penalty</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Expiration</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Zero&nbsp;&#150;&nbsp;3</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>Remaining Life</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustable rate mortgage loans:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    With prepayment penalties</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Without prepayment penalties</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>40%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fixed rate mortgage loans:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    With prepayment penalties</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>42%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
For fixed rate mortgages without prepayment penalties, we use an
average prepayment rate of 35% over the life of the loans.
Prepayment rate is projected based on actual paydown including
voluntary, involuntary and scheduled principal payments.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Expected static pool credit losses are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap>Mortgage Loans Securitized in</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2002</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Prior</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    April&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.83%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.30%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.08%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.53%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4.52%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    April&nbsp;30, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.92%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.35%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.58%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.46%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Static pool credit losses are calculated by summing the actual
and projected future credit losses and dividing them by the
original balance of each pool of assets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
At April&nbsp;30, 2005, the sensitivities of the current fair
value of the residual interests and MSRs to 10% and 20% adverse
changes in the above key assumptions are presented in the
following
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 61</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
table. These sensitivities are hypothetical and should be used
with caution. As the figures indicate, changes in fair value
based on a 10% variation in assumptions generally cannot be
extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also
in this table, the effect of a variation of a particular
assumption on the fair value of the retained interest is
calculated without changing any other assumptions; in reality,
changes in one factor may result in changes in another, which
might magnify or counteract the sensitivities.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Residential Mortgage Loans</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>NIM</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Beneficial interest</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Residuals</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>in Trusts</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>MSRs</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Carrying amount/fair value of residuals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>205,936</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>215,367</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>166,614</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average life (in years)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    $ impact on fair value:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepayments (including defaults):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 10%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(2,458</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(12,950</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(23,801</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 20%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8,293</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(20,572</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(40,525</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Credit losses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 10%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(32,731</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(6,962</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>Not applicable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 20%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(64,368</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(13,917</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>Not applicable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Discount rate:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 10%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(5,158</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(5,492</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(2,175</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 20%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,023</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,730</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(4,301</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Variable interest rates:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 10%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(9,991</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(36,552</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>Not applicable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adverse 20%</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(20,700</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(73,646</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>Not applicable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Mortgage loans which have been securitized at April&nbsp;30,
2005 and 2004, past due sixty days or more and the related net
credit losses are presented below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Total Principal</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Principal Amount of Loans</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Net Credit Losses</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Amount of Loans Outstanding</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>60&nbsp;Days or More Past Due</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>(net of recoveries)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>April&nbsp;30,</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>April&nbsp;30,</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Year Ended April&nbsp;30,</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual mortgage loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>10,300,805</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,732,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,128,376</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,286,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>132,015</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>159,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Warehouse</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,742,387</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,244,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total loans</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>17,043,192</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,977,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,128,376</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,286,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>132,015</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>159,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;7: GOODWILL AND INTANGIBLE ASSETS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Changes in the carrying amount of goodwill by segment for the
year ended April&nbsp;30, 2005, are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="13">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Additions</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>350,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>360,781</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>152,467</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>317,002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>328,745</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>173,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>173,954</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>993,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,015,947</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 62</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Goodwill and other indefinite life intangible assets were tested
for impairment in the fourth quarter of fiscal year 2005. An
independent valuation firm was engaged to assist in the test for
selected reporting units. No impairment existed at any of our
reporting units during fiscal year 2005 or 2004. In light of
unsettled market conditions and the severe decline of comparable
business valuations in the investment industry, we engaged an
independent valuation firm in fiscal year 2003 to perform the
goodwill impairment test on the Investment Services segment in
accordance with SFAS&nbsp;142. Based on this valuation, a
goodwill impairment charge of $108.8&nbsp;million was recorded
during fiscal year 2003. Also during 2003, our annual impairment
test resulted in an impairment of $13.5&nbsp;million for a
reporting unit within the Business Services segment. No other
impairments were identified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The goodwill and intangible assets previously included in
Corporate as of April&nbsp;30, 2004 have been reclassified to
the Tax Services segment to more appropriately reflect our
segment reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The components of intangible assets are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>




<TR style="font-size: 7pt;">
    <TD colspan="25" align="right" nowrap>-----------------------------------------------------------------------------------------------------------------------(in-000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap><B>April&nbsp;30,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>2004&nbsp;(Restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Gross</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Carrying</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Accumulated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Carrying</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Accumulated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amount</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amortization</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Net</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amount</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Amortization</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Net</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="28" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax&nbsp;Services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer relationships</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>23,717</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(7,207</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>16,510</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,011</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,377</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Noncompete agreements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>17,677</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(11,608</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,069</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,724</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer relationships</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>130,585</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(68,433</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>62,152</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(56,313</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Noncompete agreements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,796</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(11,274</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>16,522</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,670</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade name&nbsp;&#150; amortizing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,450</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(995</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>455</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(926</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade name&nbsp;&#150; non-amortizing</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>55,637</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(4,868</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>50,769</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,868</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Customer relationships</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>293,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(198,385</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>94,615</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>293,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(161,760</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>549,862</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(302,770</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>247,092</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>535,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(241,638</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>293,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="28" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Amortization of intangible assets for the years ended
April&nbsp;30, 2005, 2004 and 2003 was $61.4&nbsp;million,
$61.5&nbsp;million and $51.8&nbsp;million, respectively.
Estimated amortization of intangible assets for fiscal years
2006, 2007, 2008, 2009 and 2010 is $60.6&nbsp;million,
$51.6&nbsp;million, $34.4&nbsp;million, $11.7&nbsp;million and
$9.8&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;8: PROPERTY AND EQUIPMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The components of property and equipment are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Land</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>23,716</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Buildings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>67,031</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Computers and other equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>568,986</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>498,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capitalized software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>153,794</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>175,048</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>988,575</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>852,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: Accumulated depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>658,425</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>579,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>330,150</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>273,303</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Depreciation and amortization expense for 2005, 2004 and 2003
was $122.5&nbsp;million, $117.6&nbsp;million and
$117.3&nbsp;million, respectively. Included in depreciation and
amortization expense is amortization of capitalized software of
$23.6&nbsp;million, $28.2&nbsp;million and
$29.9&nbsp;million,&nbsp;respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of April&nbsp;30, 2005 and 2004, we have property and
equipment under capital lease with a cost of $16.8&nbsp;million
and $14.1&nbsp;million, respectively, and accumulated
depreciation of $4.2&nbsp;million and $2.5&nbsp;million,
respectively. We have an agreement to lease real estate and
buildings under a noncancelable capital lease for the next
16&nbsp;years with an option to purchase after three&nbsp;years.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 63</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;9: DERIVATIVE INSTRUMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
A summary of our derivative instruments as of April&nbsp;30,
2005 is as follows:
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Asset (Liability)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>Gain (Loss) in the</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>Balance at April&nbsp;30,</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>Year Ended April&nbsp;30,</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest rate swaps</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(1,325</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>47,192</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,703</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,194</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest rate caps</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>12,458</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(106</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rate-lock equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>801</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,386</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,187</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,917</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prime short sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(805</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(2,420</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,663</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,105</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>11,129</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>46,853</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(11,957</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,141</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
We use interest rate swaps and forward loan sale commitments to
reduce interest rate risk associated with non-prime loans. We
generally enter into interest rate swap arrangements related to
existing loan applications with rate-lock commitments and,
beginning at the end of our second quarter, for rate-lock
commitments we expect to make in the next 30&nbsp;days. Interest
rate swaps represent an agreement to exchange interest rate
payments, effectively converting our fixed financing costs into
a floating rate. These contracts increase in value as rates rise
and decrease in value as rates fall.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We enter into interest rate caps to mitigate interest rate risk
associated with mortgage loans that will be securitized and
residual interests that are classified as trading securities
because they will be sold in a subsequent NIM transaction. The
caps enhance the marketability of the securitization and NIM
transactions. An interest rate cap represents a right to receive
cash if interest rates rise above a contractual strike rate, its
value therefore increases as interest rates rise. The interest
rate used in our interest rate caps is based on LIBOR.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We enter into forward loan commitments to sell our non-prime
mortgage loans to manage interest rate risk. Forward loan sale
commitments for non-prime loans are not considered derivative
instruments and are therefore not recorded in our financial
statements. The notional value and the contract value of the
forward commitments at April&nbsp;30, 2005 were
$8.7&nbsp;billion and $8.9&nbsp;billion, respectively. Most of
our forward commitments give us the option to under- or
over-deliver by five to ten percent.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We, in the normal course of business, enter into commitments
with our customers to fund both non-prime and prime mortgage
loans for specified periods of time at &#147;locked-in&#148;
interest rates. These derivative instruments represent
commitments to fund loans (&#147;rate-lock equivalents&#148;).
The fair value of non-prime loan commitments is calculated using
a binomial option model. We adopted SEC Staff Accounting
Bulletin&nbsp;No.&nbsp;105, &#147;Application of Accounting
Principles to Loan&nbsp;Commitments,&#148; as of March&nbsp;31,
2004. Upon adoption, we no longer record an asset for non-prime
commitments to fund loans. The fair value of prime loan
commitments is calculated based on the current market pricing of
short sales of FNMA, FHLMC and GNMA mortgage-backed securities
and the coupon rates of the eligible loans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We sell short FNMA, FHLMC and GNMA mortgage-backed securities to
reduce our risk related to our commitments to fund fixed-rate
prime loans. The position on certain or all of the fixed-rate
mortgage loans is closed approximately 10-15&nbsp;days prior to
standard Public Securities Association (&#147;PSA&#148;)
settlement dates.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We entered into an agreement with Household (subsequently
acquired by HSBC) during fiscal year 2003, whereby we waived our
right to purchase any participation interests in and receive
license fees relating to RALs during the period January&nbsp;1
through April&nbsp;30, 2004. In consideration for waiving these
rights, we received a series of payments from Household, subject
to certain adjustments based on delinquency rates on RALs made
by Household through December&nbsp;31, 2003. This adjustment
provision was accounted for as a derivative and was
marked-to-market monthly through December&nbsp;31, 2003.
Accordingly, during fiscal year 2004, we recognized
$6.5&nbsp;million of revenues related to this instrument. The
final settlement in accordance with this agreement was received
in January 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
None of our derivative instruments qualify for hedge accounting
treatment as of April&nbsp;30, 2005 and 2004.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 64</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;10: LONG-TERM DEBT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The components of long-term debt and capital lease obligations
are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior Notes,
    8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>%,
    due April 2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>498,825</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>498,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior Notes, 5.125%, due October 2014</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>397,766</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services acquisition obligations, due from May 2005 to
    January 2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>38,022</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital lease obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,550</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other obligations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>455</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior Notes,
    6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%,
    due November 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>249,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>948,618</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>821,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less: Current portion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25,545</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>275,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>923,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>545,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On October&nbsp;26, 2004, we issued $400.0&nbsp;million of
5.125%&nbsp;Senior Notes under a shelf registration statement.
The Senior Notes are due October&nbsp;30, 2014, and are not
redeemable by the bondholders prior to maturity. The net
proceeds of this transaction were used to repay the
$250.0&nbsp;million in
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes. The remaining proceeds were used for working capital,
capital expenditures, repayment of other debt and other general
corporate purposes.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On April&nbsp;13, 2000, we issued $500.0&nbsp;million of
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>%&nbsp;Senior
Notes under a shelf registration statement. The Senior Notes are
due April&nbsp;15, 2007, and are not redeemable prior to
maturity. The net proceeds of this transaction were used to
repay a portion of the short-term borrowings that initially
funded the acquisition of OLDE Financial Corporation and
Financial Marketing Services,&nbsp;Inc.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On October&nbsp;21, 1997, we issued $250.0&nbsp;million of
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes under a shelf registration statement. The Senior Notes
were due November&nbsp;1, 2004, and the net proceeds were used
to repay short-term borrowings, which initially funded the
acquisition of Option&nbsp;One.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have obligations related to Business Services acquisitions of
$38.0&nbsp;million and $60.8&nbsp;million at April&nbsp;30, 2005
and 2004, respectively. The current portion of these amounts is
included in the current portion of long-term debt on the
consolidated balance sheet. The long-term portions are due from
May 2006 to January&nbsp;2008.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have a capitalized lease obligation of $13.6&nbsp;million at
April&nbsp;30, 2005 that is collateralized by land and
buildings. The obligation is due in 16&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The aggregate payments required to retire long-term debt are
$25.5&nbsp;million, $511.5&nbsp;million, $1.0&nbsp;million,
$0.5&nbsp;million, $0.6&nbsp;million and $409.5&nbsp;million in
2006, 2007, 2008, 2009, 2010 and beyond,&nbsp;respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Based upon borrowing rates currently available for indebtedness
with similar terms, the fair value of long-term debt was
approximately $981.8&nbsp;million and $893.5&nbsp;million at
April&nbsp;30, 2005 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;11: OTHER NONCURRENT LIABILITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have deferred compensation plans that permit directors and
certain employees to defer portions of their compensation and
accrue income on the deferred amounts. Their deferred
compensation and our matching amounts have been accrued.
Included in other noncurrent liabilities are $115.4&nbsp;million
and $93.4&nbsp;million at April&nbsp;30, 2005 and 2004,
respectively, reflecting the liability under these plans. We
purchase whole-life insurance contracts on certain director and
employee participants to recover distributions made or to be
made under the plans and record the cash surrender value of the
policies in other noncurrent assets.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have recorded $213.4&nbsp;million and $178.7&nbsp;million for
obligations to certain government agencies at April&nbsp;30,
2005 and 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In connection with our acquisition of the non-attest assets of
McGladrey&nbsp;&#38; Pullen, LLP (&#147;M&#38;P&#148;) in August
1999, we assumed certain pension liabilities related to
M&#38;P&#146;s retired partners. We make payments in varying
amounts on a monthly basis. Included in other noncurrent
liabilities at April&nbsp;30, 2005 and 2004 are
$15.9&nbsp;million and $17.5&nbsp;million, respectively, related
to this&nbsp;liability.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;12: STOCKHOLDERS&#146; EQUITY</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We are authorized to issue 6.0&nbsp;million shares of Preferred
Stock, without par value. At April&nbsp;30, 2005, we had
5.6&nbsp;million shares of authorized but unissued Preferred
Stock. Of the unissued shares, 0.6&nbsp;million shares have been
designated as Participating Preferred Stock in connection with
our shareholder rights plan.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
On March&nbsp;8, 1995, our Board of Directors authorized the
issuance of a series of 0.5&nbsp;million shares of nonvoting
Preferred Stock designated as Convertible Preferred Stock,
without par value. In April 1995, 0.4&nbsp;million shares of
Convertible Preferred Stock were issued in connection with an
acquisition. In addition,
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 65</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
options to purchase&nbsp;51,828&nbsp;shares of Convertible
Preferred Stock were issued as a part of the acquisition and
37,399&nbsp;shares of Convertible Preferred Stock were issued in
connection with these options. Each share of Convertible
Preferred Stock became convertible on April&nbsp;5, 1998 into
four shares of Common Stock of the Company (eight shares after a
two-for-one stock split in August 2001), subject to adjustment
upon certain events. The holders of the Convertible Preferred
Stock are not entitled to receive dividends paid in cash,
property or securities and, in the event of any dissolution,
liquidation or wind-up of the Company, will share ratably with
the holders of Common Stock then outstanding in the assets of
the Company after any distribution or payments are made to the
holders of Participating Preferred Stock or the holders of any
other class or series of stock of the Company with preference
over the Common Stock.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We grant restricted shares to selected employees under our
stock-based compensation plans. Upon the grant of restricted
shares, unearned compensation is recorded as an offset to
additional paid in capital and is amortized as compensation
expense over the restricted period. The balance of unearned
compensation related to restricted shares at April&nbsp;30, 2005
and 2004 was $23.7&nbsp;million and $15.0&nbsp;million,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;13: STOCK-BASED COMPENSATION AND RETIREMENT
BENEFITS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have four stock-based compensation plans: the 2003 Long-Term
Executive Compensation Plan, the 1989 Stock Option Plan for
Outside Directors, the 1999 Stock Option Plan for Seasonal
Employees, and the 2000 ESPP. The shareholders have approved all
of our stock-based compensation plans.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The 2003 Plan replaced the 1993 Long-Term Executive Compensation
Plan, effective July&nbsp;1, 2003. The 1993 Plan terminated at
that time, except with respect to outstanding awards thereunder.
The shareholders had approved the 1993 Plan in September 1993 to
replace the 1984 Long-Term Executive Compensation Plan, which
terminated at that time except with respect to outstanding
awards thereunder. Under the 2003 and 1989 plans, options may be
granted to selected employees and outside directors to purchase
our Common Stock for periods not exceeding 10&nbsp;years at a
price that is not less than 100% of fair market value on the
date of the grant.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Options granted under the 2003 Plan are exercisable either
(1)&nbsp;starting one year after the date of the grant,
(2)&nbsp;starting one, two or three years after the date of the
grant on a cumulative basis at the annual rate of
33<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">3</FONT>%
of the total number of option shares, or (3)&nbsp;starting three
years after the date of the grant on a cumulative basis at the
rate of 40%, 30%, and 30% over the following three years. In
addition, certain option grants have accelerated vesting
provisions based on our stock price reaching specified levels.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Options granted under the 1989 Plan for Outside Directors prior
to June&nbsp;30, 2004 are exercisable starting one year after
the date of grant on a cumulative basis at an annual rate of
33<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">3</FONT>%
of the total number of option shares. Beginning with the grant
on June&nbsp;30, 2004, options granted under this Plan are fully
vested and immediately exercisable as of the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Under the 2003 and 1989 plans, restricted shares of our common
stock may be granted to selected employees. Restricted shares
granted vest either (1)&nbsp;starting one or three years after
the grant on a cumulative basis at an annual rate of
33<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">3</FONT>%
of the total number of shares, or (2)&nbsp;at the end of three
years.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The 1999 Stock Option Plan for Seasonal Employees provided for
the grant of options on June&nbsp;30, 2004, 2003 and 2002 at the
market price on the date of the grant. The options are
exercisable during September through November in each of the two
years following the calendar year of the grant, subject to
certain conditions.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 66</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Changes during the years ended April&nbsp;30, 2005, 2004 and
2003 under the stock-based compensation plans were as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap>(shares in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="26" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercise Price</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercise Price</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Shares</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercise Price</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options outstanding, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>14,482</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>35.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>32.14</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>26.33</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,802</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>47.73</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.05</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.32</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(3,479</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>37.24</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,927</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29.11</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,098</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>24.65</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options expired/cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,253</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.42</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,107</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>34.51</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(404</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>34.53</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Options outstanding, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>38.04</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>35.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>32.14</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares exercisable, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>31.78</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>30.78</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25.21</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>490</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>47.78</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43.93</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.64</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares vested</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>175</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43.31</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>23.79</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21.02</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Restricted shares outstanding, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>777</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>46.40</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43.92</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29.15</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Shares reserved for future option or restricted stock grants,
    end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9,889</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
A summary of stock options outstanding and exercisable at
April&nbsp;30, 2005 follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="18%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(shares in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap>Outstanding</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Exercisable</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Number</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Number</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Weighted-</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Outstanding</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Remaining</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercisable</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Average</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>at April&nbsp;30</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Contractual Life</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercise Price</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>at April&nbsp;30</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Exercise Price</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>$&nbsp;16.13&nbsp;&#150; 21.91</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,740</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4&nbsp;years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>18.15</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>18.16</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>$&nbsp;22.13&nbsp;&#150; 27.81</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,231</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4&nbsp;years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25.98</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25.97</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>$&nbsp;32.10&nbsp;&#150; 39.96</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,925</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>7&nbsp;years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33.34</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>33.46</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>$&nbsp;40.00&nbsp;&#150; 46.26</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,983</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8&nbsp;years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.45</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.03</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>$&nbsp;47.00&nbsp;&#150; 58.95</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,673</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9&nbsp;years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>48.30</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>54.07</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>13,552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The ESPP provides the option to purchase shares of our Common
Stock through payroll deductions to a majority of the employees
of our subsidiaries. The purchase price of the stock is 90% of
the lower of either the fair market value of our Common Stock on
the first trading day within the Option Period or on the last
trading day within the Option Period. The Option Periods are
six-month periods beginning January 1 and July&nbsp;1 each year.
During fiscal years 2005 and 2004, 150,488 and
127,246&nbsp;shares, respectively, were purchased under the ESPP
out of a total authorized 6.0&nbsp;million shares.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal years 2005 and 2004, we recorded compensation
expense under the fair value method using the Black-Scholes
option-pricing model on the date of the grant. The pro forma
effect on fiscal year 2003 is disclosed in note&nbsp;1. The
following weighted-average assumptions and fair values were used
for
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 67</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
stock option grants and ESPP options during the following
periods:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock option grants&nbsp;&#150; management:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3.86%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.64%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.82%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5&nbsp; years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5&nbsp; years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>32.07%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31.13%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29.30%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.84%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.63%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.59%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>11.73</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock option grants&nbsp;&#150; seasonal:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.60%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.21%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.82%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2&nbsp; years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2&nbsp; years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2&nbsp;years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27.65%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31.97%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28.71%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.85%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.66%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.39%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>6.58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    ESPP options:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Risk-free interest rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2.17%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.97%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.45%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected life</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>6&nbsp; months</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6&nbsp; months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6&nbsp; months</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected volatility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>21.18%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38.14%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.38%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividend yield</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1.82%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.55%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.60%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average fair value</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>7.67</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have 401(k) defined contribution plans covering all full-time
employees following the completion of an eligibility period. Our
contributions to these plans are discretionary and totaled
$33.4&nbsp;million, $28.9&nbsp;million and $20.7&nbsp;million
for fiscal years 2005, 2004 and 2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;14: SHAREHOLDER RIGHTS PLAN</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
On July&nbsp;25, 1998, the rights under a shareholder rights
plan, adopted by our Board of Directors on March&nbsp;25, 1998,
became effective. The 1998 plan was adopted to deter coercive or
unfair takeover tactics and to prevent a potential acquirer from
gaining control of the Company without offering a fair price to
all of our stockholders. Under the 1998 plan, a dividend of one
right (a &#147;Right&#148;) per share was declared and paid on
each share of our Common Stock outstanding on July&nbsp;25,
1998. Rights automatically attach to shares issued after such
date.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Under the 1998 plan, a Right becomes exercisable when a person
or group of persons acquires beneficial ownership of 15% or more
of the outstanding shares of our Common Stock without the prior
written approval of our Board of Directors (an &#147;Unapproved
Stock Acquisition&#148;), and at the close of business on the
tenth business day following the commencement of, or the public
announcement of an intent to commence, a tender offer that would
result in an Unapproved Stock Acquisition. We may, prior to any
Unapproved Stock Acquisition, amend the plan to lower such 15%
threshold to not less than the greater of (1)&nbsp;any
percentage greater than the largest percentage of beneficial
ownership by any person or group of persons then known by the
Company, and (2)&nbsp;10% (in which case the acquisition of such
lower percentage of beneficial ownership then constitutes an
Unapproved Stock Acquisition and the Rights become exercisable).
When exercisable, the registered holder of each Right may
purchase from the Company one two-hundredth of a share of a
class of our Participating Preferred Stock, without par value,
at a price of $107.50, subject to adjustment. The registered
holder of each Right then also has the right (the
&#147;Subscription Right&#148;) to purchase for the exercise
price of the Right, in lieu of shares of Participating Preferred
Stock, a number of shares of our Common Stock having a market
value equal to twice the exercise price of the Right. Following
an Unapproved Stock Acquisition, if we are involved in a merger,
or 50% or more of our assets or earning power are sold, the
registered holder of each Right has the right (the &#147;Merger
Right&#148;) to purchase for the exercise price of the Right a
number of shares of the common stock of the surviving or
purchasing company having a market value equal to twice the
exercise price of the Right.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
After an Unapproved Stock Acquisition, but before any person or
group of persons acquires 50% or more of the outstanding shares
of our Common Stock, the Board of Directors may exchange all or
part of the then outstanding and exercisable Rights for Common
Stock at an exchange ratio of one share of Common Stock per
Right (the &#147;Exchange&#148;). Upon any such Exchange, the
right of any holder to exercise a Right terminates. Upon the
occurrence of any of the events giving rise to the
exercisability of the Subscription Right or the Merger Right or
the ability of the Board of Directors to effect the Exchange,
the Rights held by the acquiring person or group under the new
plan will become void as they relate to the Subscription Right,
the Merger Right or the Exchange.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We may redeem the Rights at a price of $.000625&nbsp;per Right
at any time prior to the earlier of (1)&nbsp;an Unapproved Stock
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 68</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
Acquisition, or (2)&nbsp;the expiration of the rights. The
Rights under the plan will expire on March&nbsp;25, 2008, unless
extended by the Board of Directors. Until a Right is exercised,
the holder thereof, as such, will have no rights as a
stockholder of the Company, including the right to vote or to
receive dividends. The issuance of the Rights alone has no
dilutive effect and does not affect reported earnings per share.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;15: INCOME TAXES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The components of income upon which domestic and foreign income
taxes have been provided are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Domestic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,013,844</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,150,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>844,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,871</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Deferred income tax provisions (benefits)&nbsp;reflect the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The current and
deferred components of taxes on income are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>384,735</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>389,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>361,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>37,192</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,169</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,276</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>424,203</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>407,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(39,770</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(895</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,610</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,666</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(87</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,646</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Foreign</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(909</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(42,345</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(986</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29,944</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total provision for income taxes before change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax on cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,031</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax included in comprehensive income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(3,991</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,387</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,387</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>377,867</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>439,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>376,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The following table reconciles the provision for income taxes at
the federal statutory rate of 35% to income tax expense:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(dollars in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Statutory tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>356,200</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>407,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>299,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increases in income taxes resulting from:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State income taxes, net of Federal income tax benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>25,552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of non-deductible goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>106</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total income tax expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effective tax rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>37.5%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38.5%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.2%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The components of deferred taxes are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="12" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>53,006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>55,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for credit losses and related reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>35,116</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,099</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>91,646</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interest income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>131,580</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>114,743</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred and stock-based compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>61,111</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>31,379</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>20,018</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Noncurrent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>244,088</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>179,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>335,734</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>258,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(20,018</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,661</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>315,716</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>234,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross deferred tax liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and revenue deferred for tax</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(13,454</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,040</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(13,454</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,040</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage servicing rights</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(61,190</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(38,005</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(100,923</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(87,728</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Noncurrent</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(162,113</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,733</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>140,149</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>93,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 69</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We believe the net deferred tax asset at April&nbsp;30, 2005 of
$140.1&nbsp;million is realizable. We have federal taxable
income in excess of $2.3&nbsp;billion and substantial state
taxable income in the carry-back period, as well as a history of
growth in earnings and prospects for continued earnings growth.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of April&nbsp;30, 2005, we had net operating loss
carryforwards for tax purposes in various states and foreign
countries of approximately $363.6&nbsp;million. If not used,
these carryforwards will expire in varying amounts during fiscal
years 2006 through 2024.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We intend to indefinitely reinvest foreign earnings, therefore,
a provision has not been made for income taxes which might be
payable upon remittance of such earnings. Moreover, due to the
availability of foreign income tax credits, management believes
the amount of federal income taxes would be immaterial in the
event foreign earnings were repatriated.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have not reevaluated our position with respect to the
indefinite reinvestment of foreign earnings to take into account
the possible election of the repatriation provisions contained
in the American Jobs Creation Act of 2004. The status of our
evaluation of these provisions is described in the following
section.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">AMERICAN JOBS CREATION ACT OF
2004</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;The
American Jobs Creation Act of 2004 (the &#147;Act&#148;),
enacted on October&nbsp;22, 2004, provides for a temporary 85%
dividends received deduction on certain foreign earnings
repatriated during a one-year period. The deduction would result
in an approximate 5.25% federal tax rate on any repatriated
earnings. To qualify for the deduction, the earnings must be
reinvested in the U.S.&nbsp;pursuant to a domestic reinvestment
plan established by a company&#146;s chief executive officer and
approved by the company&#146;s board of directors. Certain other
criteria in the Act must be satisfied as well. Our one-year
period during which the qualifying distributions can be made
ends on December&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have begun our evaluation of the effects of the Act, but do
not expect to be able to complete this evaluation until
additional clarifying language on key elements of the Act is
issued. As of April&nbsp;30, 2005, we have not provided deferred
taxes on foreign earnings because we intended to indefinitely
reinvest such earnings outside the U.S.&nbsp;Whether we will
ultimately take advantage of this provision depends on our
review of the Act and any additional guidance provided and we
are therefore currently uncertain as to the impact, if any, this
matter will have on our consolidated financial statements, and
are unable to estimate the amount of earnings we may repatriate.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;16: SUPPLEMENTAL CASH FLOW INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We made the following cash payments:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>437,427</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>331,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>247,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>82,535</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We characterized the following as non-cash investing activities:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="14" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additions to residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>16,914</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Residual interest mark-to-market</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>95,929</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,065</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="15" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;17: COMMITMENTS, CONTINGENCIES AND RISKS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">COMMITMENTS AND
CONTINGENCIES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;At
April&nbsp;30, 2005, we maintained $2.0&nbsp;billion in back-up
credit facilities to support the commercial paper program and
for general corporate purposes. The first $1.0&nbsp;billion
unsecured committed line of credit (&#147;CLOC&#148;) is subject
to annual renewal in August 2005, has a one-year term-out
provision with a maturity date in August 2006 and has an annual
facility fee of ten basis points per annum. The second
$1.0&nbsp;billion CLOC has a maturity date of August 2009 and
has an annual facility fee of twelve basis points per annum.
Among other provisions, the credit agreement limits our
indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We maintain a revolving credit facility in an amount not to
exceed $125.0&nbsp;million (Canadian) in Canada to support a
commercial paper program with varying borrowing levels
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 70</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
throughout the year, reaching its peak during February and March
for the Canadian tax season.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We offer guarantees under our POM program to tax clients whereby
we will assume the cost, subject to certain limits, of
additional tax assessments, up to a cumulative per client limit
of $5,000, attributable to tax return preparation error for
which we are responsible. We defer all revenues and direct costs
associated with these guarantees, recognizing these amounts over
the term of the guarantee based upon historic and actual payment
of claims. The related current asset is included in prepaid
expenses and other current assets. The related liability is
included in accounts payable, accrued expenses and other on the
consolidated balance sheets. The related noncurrent asset and
liability are included in other assets and other noncurrent
liabilities, respectively, on the consolidated balance sheets. A
loss on these POM guarantees would be recognized if the sum of
expected costs for services exceeded unearned revenue. The
deferred revenue liability increased in fiscal year 2004 by
$61.5&nbsp;million due to the change in accounting principle.
The changes in the deferred revenue liability for the fiscal
years ended April&nbsp;30, 2005 and 2004 are as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" nowrap>April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>123,048</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>49,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amounts deferred for new guarantees issued</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>77,756</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenue recognized on previous deferrals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(70,042</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(69,522</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustment resulting from change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>130,762</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>123,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have commitments to fund mortgage loans to customers as long
as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or
other termination clauses. The commitments to fund loans
amounted to $3.9&nbsp;billion and $2.6&nbsp;billion at
April&nbsp;30, 2005 and 2004, respectively. External market
forces impact the probability of commitments being exercised,
and therefore, total commitments outstanding do not necessarily
represent future cash requirements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have entered into whole loan sale agreements with investors
in the normal course of business, which include standard
representations and warranties customary to the mortgage banking
industry. Violations of these representations and warranties may
require us to repurchase loans previously sold. In accordance
with these loan sale agreements, we repurchased loans with an
outstanding principal balance of $195.3&nbsp;million and
$192.3&nbsp;million during the fiscal years ended April&nbsp;30,
2005 and 2004, respectively. A liability has been established
related to the potential loss on repurchase of loans previously
sold of $41.2&nbsp;million and $25.2&nbsp;million at
April&nbsp;30, 2005 and 2004, respectively. Repurchased loans
are normally sold in subsequent sale transactions. On an ongoing
basis, we monitor the adequacy of this liability, which is
established upon the initial sale of the loans, and is included
in accounts payable, accrued expenses and deposits in the
consolidated balance sheets. In determining the adequacy of the
recourse liability, we consider such factors as known problem
loans, underlying collateral values, historical loan loss
experience, assessment of economic conditions and other
appropriate data to identify the risks in the mortgage loans
held for sale.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are responsible for servicing mortgage loans for others of
$47.5&nbsp;billion and subservicing loans of $20.5&nbsp;billion
at April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are required, under the terms of our securitizations, to
build and/or maintain overcollateralization (&#147;OC&#148;) to
specified levels, using the excess cash flows received, until
specified percentages of the securitized portfolio are attained.
We fund the OC account from the proceeds of the sale. Future
cash flows to the residual holder are used to amortize the bonds
until a specific percentage of either the original or current
balance is retained, which is specified in the securitization
agreement. The bondholders&#146; recourse to us for credit
losses is limited to the excess cash flows received and the
amount of OC held by the trust. Upon maturity of the bonds, any
remaining amounts in the trust are distributed. The estimated
future cash flows to be distributed to us are included as part
of the residual valuation and are valued upon distribution from
the OC account. As of April&nbsp;30, 2005 and 2004,
$309.5&nbsp;million and $316.0&nbsp;million, respectively, was
maintained in various OC accounts. These accounts are not assets
of the Company and are not reflected in the accompanying
consolidated financial statements, other than to the extent
potential OC cash flows are included as part of residual
interest valuations.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Option One provides a guarantee up to a maximum amount equal to
approximately 10% of the aggregate principal balance of mortgage
loans held by the Trusts before ultimate disposition of the
loans by the Trusts. This guarantee would be called upon in the
event adequate proceeds were not available from the sale of the
mortgage loans to satisfy the current or ultimate payment
obligations of the Trusts. No losses have been sustained on this
commitment since its inception. The total principal amount of
Trust obligations outstanding as of April&nbsp;30, 2005 and 2004
was $6.7&nbsp;billion and $3.2&nbsp;billion, respectively. The
fair value of mortgage loans held by the Trusts as of
April&nbsp;30, 2005 and 2004 was $6.8&nbsp;billion and
$3.3&nbsp;billion, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are required, in the event of non-delivery of customers&#146;
securities owed to us by other broker-dealers or by our
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 71</FONT></B></TD>
</TR>

</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
customers, to purchase identical securities in the open market.
Such purchases could result in losses not reflected in the
accompanying consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of April&nbsp;30, 2005, we had pledged securities totaling
$44.6&nbsp;million, which satisfied margin deposit requirements
of $52.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We monitor the credit standing of brokers and dealers and
customers with whom we do business. In addition, we monitor the
market value of collateral held and the market value of
securities receivable from others, and seek to obtain additional
collateral if insufficient protection against loss exists.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have various contingent purchase price obligations in
connection with prior acquisitions. In many cases, contingent
payments to be made in connection with these acquisitions are
not subject to a stated limit. We estimate the potential
payments (undiscounted)&nbsp;total approximately
$5.1&nbsp;million as of April&nbsp;30, 2005. Our estimate is
based on current financial conditions. Should actual results
differ materially from the assumptions, the potential payments
will differ from the above estimate. Such payments, if and when
paid, would be recorded as additional goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
At April&nbsp;30, 2005, we had a receivable from M&#38;P of
$13.8&nbsp;million. This amount is included in receivables in
the consolidated balance sheet. Commitments exist to loan
M&#38;P the lower of the value of their accounts receivable,
work-in-process and fixed assets or $75.0&nbsp;million, on a
revolving basis through August&nbsp;30, 2005, subject to certain
termination clauses. This revolving facility bears interest at
prime rate plus four and one-half percent on the outstanding
amount and a commitment fee of one-half percent per annum on the
unused portion of the commitment. The loan is fully secured by
the accounts receivable, work-in-process and fixed assets of
M&#38;P. We anticipate entering into a new revolving facility,
which will extend the loan past August&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We have contractual commitments to fund certain franchises
requesting Franchise Equity Lines of Credit (&#147;FELCs&#148;).
The commitment to fund FELCs as of April&nbsp;30, 2005 totaled
$68.9&nbsp;million, with a related receivable balance of
$39.0&nbsp;million included in the consolidated balance sheets.
The receivable represents the amount drawn on the FELCs as of
April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are self-insured for certain risks, including certain
employee health and benefit, workers&#146; compensation,
property and general liability claims, and claims related to our
POM program. We issued two standby letters of credit to
servicers paying claims related to our POM, errors and omissions
and worker&#146;s compensation insurance policies. These letters
of credit are for amounts not to exceed $10.7&nbsp;million,
$3.0&nbsp;million and $0.9&nbsp;million, respectively. At
April&nbsp;30, 2005 there were no balances outstanding on these
letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
HRBFA has letters of credit with a financial institution with a
credit limit of $125.0&nbsp;million. There were no borrowings on
these letters of credit during fiscal years 2005 or 2004 and no
outstanding balance at April&nbsp;30, 2005 or 2004.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
During fiscal year 2004, we announced plans to construct a new
world headquarters facility in downtown Kansas City, Missouri.
We are in negotiations to enter into contractual commitments
with the City of Kansas City and a general contractor for the
construction of the building. As of April&nbsp;30, 2005, no
commitment for the total cost of the building had been
negotiated. We expect the remaining expenditure associated with
this building to be approximately $143.1&nbsp;million, which
will be paid over the next two fiscal years.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We routinely enter into contracts that include embedded
indemnifications that have characteristics similar to
guarantees. Other guarantees and indemnifications of the Company
and its subsidiaries include obligations to protect counter
parties from losses arising from the following: (1)&nbsp;tax,
legal and other risks related to the purchase or disposition of
businesses; (2)&nbsp;penalties and interest assessed by federal
and state taxing authorities in connection with tax returns
prepared for clients; (3)&nbsp;indemnification of our directors
and officers; and (4)&nbsp;third-party claims relating to
various arrangements in the normal course of business.
Typically, there is no stated maximum payment related to these
indemnifications, and the term of indemnities may vary and in
many cases is limited only by the applicable statute of
limitations. The likelihood of any claims being asserted against
us and the ultimate liability related to any such claims, if
any, is difficult to predict. While we cannot provide assurance
we will ultimately prevail in the event any such claims are
asserted, we believe the fair value of these guarantees and
indemnifications is not material as of April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Substantially all of the operations of our subsidiaries are
conducted in leased premises. Most of the operating leases are
for periods ranging from 3&nbsp;years to 5&nbsp;years, with
renewal options and provide for fixed monthly rentals.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Future minimum lease commitments at April&nbsp;30, 2005 are as
follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>229,768</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>186,111</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>127,153</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>81,608</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2010</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>43,337</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2011 and beyond</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>40,634</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>708,611</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 72</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our rent expense for fiscal years 2005, 2004 and 2003 totaled
$275.3&nbsp;million, $241.2&nbsp;million and
$215.5&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In the regular course of business, we are subject to routine
examinations by federal, state and local taxing authorities. In
management&#146;s opinion, the disposition of matters raised by
such taxing authorities, if any, in such tax examinations would
not have a material adverse impact on our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">RISKS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Loans
to borrowers who do not meet traditional underwriting criteria,
or non-prime borrowers, present a higher level of risk of
default than prime loans, because of previous credit problems,
higher debt-to-income levels, lack of income documentation or
limited credit history. Loans to non-prime borrowers also
involve additional liquidity risks, as these loans generally
have a more limited secondary market than prime loans. The
actual rates of delinquencies, foreclosures and losses on loans
to non-prime borrowers could be higher under adverse economic
conditions than those currently experienced in the mortgage
lending industry in general. While we believe the underwriting
procedures and appraisal processes we employ enable us to
mitigate certain risks inherent in loans made to these
borrowers, no assurance can be given that such procedures or
processes will afford adequate protection against such risks.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Commitments to fund loans involve, to varying degrees, elements
of credit risk and interest rate risk in excess of the amount
recognized in the financial statements. Credit risk is mitigated
by our evaluation of the creditworthiness of potential borrowers
on a case-by-case basis.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Risks to the stability of Mortgage Services include external
events impacting the asset-backed securities market, such as the
level of and fluctuations in interest rates, real estate and
other asset values, changes in the securitization market and
competition.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;18: LITIGATION COMMITMENTS AND CONTINGENCIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
We have been involved in a number of class actions and putative
class action cases since 1990 regarding our RAL programs. These
cases are based on a variety of legal theories and allegations.
These theories and allegations include, among others, that
(i)&nbsp;we improperly did not disclose license fees we received
from RAL lending banks for RALs they make to our clients,
(ii)&nbsp;we owe and breached a fiduciary duty to our clients
and (iii)&nbsp;the RAL program violates laws such as state
credit service organization laws and the federal Racketeer
Influenced and Corrupt Organizations (&#147;RICO&#148;) Act.
Although we have successfully defended many RAL cases, we
incurred a pretax expense of $43.5&nbsp;million in fiscal year
2003 in connection with settling one RAL case. Several of the
RAL cases are still pending and the amounts claimed in some of
them are very substantial. The ultimate cost of this litigation
could be substantial. We intend to continue defending the RAL
cases vigorously, although there are no assurances as to
their&nbsp;outcome.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As discussed in our Form&nbsp;8-K dated May&nbsp;9, 2005, we
initially recorded litigation reserves of approximately
$38.0&nbsp;million, after taxes in connection with a proposed
settlement of <I>Lynne A. Carnegie, et&nbsp;al. v. Household
International, Inc., H&#38;R Block, Inc., et&nbsp;al.,</I>
(formerly Joel E. Zawikowski, et&nbsp;al. v. Beneficial National
Bank, H&#38;R Block, Inc., Block Financial Corporation,
et&nbsp;al.). In negotiating the proposed settlement and in
determining the amount of consideration we were willing to pay
under the proposed settlement, we ascribed significant value to
the expanded class of plaintiffs to be covered by the proposed
settlement and settlement terms that reduced the likelihood of
future claims being made against us regarding our RAL programs.
As a result of the May&nbsp;26, 2005 court ruling to deny the
settlement offer, we reversed our legal reserves to amounts
representing our assessment of our probable&nbsp;loss.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
We are also parties to claims and lawsuits pertaining to our
electronic tax return filing services and our POM guarantee
program associated with income tax preparation services. These
claims and lawsuits include actions by individual plaintiffs, as
well as cases in which plaintiffs seek to represent a class of
similarly situated customers. The amounts claimed in these
claims and lawsuits are substantial in some instances, and the
ultimate liability with respect to such litigation and claims is
difficult to predict. We intend to continue defending these
cases vigorously, although there are not assurances as to
their&nbsp;outcome.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In addition to the aforementioned types of cases, we are parties
to claims and lawsuits that we consider to be ordinary, routine
disputes incidental to our business (&#147;Other Claims and
Lawsuits&#148;), including claims and lawsuits concerning the
preparation of customers&#146; income tax returns, the fees
charged customers for various services, investment products,
relationships with franchisees, contract disputes and civil
actions, arbitrations, regulatory inquiries and class actions
arising out of our business as a broker-dealer and as a servicer
of mortgage loans. We believe we have meritorious defenses to
each of the Other Claims and Lawsuits and are defending, or
intend to defend, them vigorously. Although we cannot provide
assurance we will ultimately prevail in each instance, we
believe that amounts, if any, required to be paid in the
discharge of liabilities or settlements pertaining to Other
Claims and Lawsuits will not
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

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    <TD width="99%"></TD>
    <TD width="1%"></TD>
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<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 73</FONT></B></TD>
</TR>

</TABLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
have a material adverse effect on our consolidated financial
statements. Regardless of outcome, claims and litigation can
adversely affect us due to defense costs, diversion of
management and publicity related to such&nbsp;matters.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
It is our policy to accrue for amounts related to legal matters
if it is probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. Many of the
various legal proceedings are covered in whole, or in part, by
insurance. Any receivable for insurance recoveries is recorded
separate from the corresponding litigation reserve, and only if
recovery is determined to be probable. Receivables for insurance
recoveries at April&nbsp;30, 2005 were&nbsp;immaterial.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;19: SUBSEQUENT EVENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
On June&nbsp;8, 2005, our Board of Directors declared a
two-for-one stock split of the Company&#146;s Common Stock in
the form of a 100% stock distribution, effective August&nbsp;22,
2005, to shareholders of record as of the close of business on
August&nbsp;1, 2005. Common Stock outstanding, giving
retroactive effect to the stock split at April&nbsp;30, 2005
would be 331.2&nbsp;million shares. Pro forma Common Stock and
retained earnings at April&nbsp;30, 2005 would be
$4.4&nbsp;million and $3.2&nbsp;billion, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;20: SEGMENT INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The principal business activity of our operating subsidiaries is
providing tax and financial services and products to the general
public. Management has determined the reportable segments
identified below according to types of services offered and the
manner in which operational decisions are made. We operate in
the following reportable&nbsp;segments:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">TAX
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment is primarily engaged in providing tax return preparation
and related services and products in the U.S., Canada, Australia
and the United Kingdom. Segment revenues include fees earned for
tax-related services performed at company-owned tax offices,
royalties from franchise offices, sales of tax preparation and
other software, fees from online tax preparation, and payments
related to RALs. This segment includes the Company&#146;s tax
preparation software&nbsp;&#150; TaxCut&#174; from H&#38;R
Block, and other personal productivity software offered to the
general public, and offers online do-it-yourself-tax
preparation, online tax advice to the general public through the
<I>www.hrblock.com </I>website. Revenues of this segment are
seasonal in&nbsp;nature.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our international operations contributed $110.0&nbsp;million,
$97.6&nbsp;million and $85.1&nbsp;million in revenues for fiscal
years 2005, 2004 and 2003, respectively, and $11.3&nbsp;million,
$11.1&nbsp;million and $10.5&nbsp;million of pretax income,
respectively. The previously reported International Tax
Operations segment has been aggregated with U.S.&nbsp;Tax
Operations in the Tax Services segment, and prior year results
have been reclassified to reflect this&nbsp;change.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">MORTGAGE
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment is primarily engaged in the origination of non-prime
mortgage loans, sales and securitizations of mortgage assets and
servicing of non-prime loans in the U.S.&nbsp;This segment
mainly offers, through a network of independent mortgage
brokers, a flexible product line to borrowers who are
creditworthy but do not meet traditional underwriting criteria.
Prime mortgage loan products, as well as the same flexible
product line available through brokers, are offered through
H&#38;R Block Mortgage Corporation retail offices and some other
retail&nbsp;offices.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">BUSINESS
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment offers middle-market companies accounting, tax and
consulting services, wealth management, retirement resources,
payroll services, corporate finance, and financial process
outsourcing. This segment offers services through offices
located throughout the U.S.&nbsp;Revenues of this segment are
seasonal in&nbsp;nature.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">INVESTMENT
SERVICES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment is primarily engaged in offering investment services and
securities products through H&#38;R Block Financial Advisors,
Inc., a full-service securities broker-dealer, to the general
public. Investment advice and services are primarily offered
through H&#38;R Block Financial Advisors branch&nbsp;offices.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">CORPORATE</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;This
segment consists primarily of corporate support departments that
provide services to our operating segments. These support
departments consist of marketing, information technology,
facilities, human resources, executive, legal, finance,
government relations and corporate communications. These support
department costs are largely allocated to our operating
segments. Our captive insurance and franchise financing
subsidiaries are also included within this segment, as was our
small business initiatives subsidiary in fiscal years 2004 and
2003. The pretax loss from our Corporate segment for fiscal year
2005 includes a non-operating gain of $17.3&nbsp;million, or
$0.06&nbsp;per diluted share, resulting from
legal&nbsp;recoveries.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">IDENTIFIABLE
ASSETS</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>&nbsp;Identifiable
assets are those assets, including goodwill and intangible
assets, associated with each reportable segment. The remaining
assets are classified as corporate assets and consist primarily
of cash, marketable securities and&nbsp;equipment.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 74</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Information concerning the Company&#146;s operations by
reportable segment as of and for the years ended April&nbsp;30,
2005, 2004 and 2003 is as follows. See note&nbsp;2 for details
of the restatement of our previously issued financial statements.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="28" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>2004</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Adjustments</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="10" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">REVENUES&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,358,293</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,191,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,191,177</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,946,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,946,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,246,018</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,300,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,323,709</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,186,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36,396</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,150,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>573,316</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>499,210</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>434,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>434,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>239,244</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,470</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,148</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,314</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,314</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(651</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,205,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,746,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(15,331</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">INCOME (LOSS) BEFORE
    TAXES&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>663,518</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>638,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(196</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>638,493</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>557,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(839</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>556,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>496,093</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>678,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>688,523</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>693,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,626</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>656,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,871</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,321</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,312</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,118</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,915</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(16,033</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(75,370</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,446</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,168</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(75,614</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(128,292</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(91,129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(219,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(96,397</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,668</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(71</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(107,739</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(122,005</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(122,009</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,164,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,182</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>987,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(131,513</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="16" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">DEPRECIATION AND
    AMORTIZATION&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>79,079</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>76,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>61,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>31,043</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>23,591</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>48,662</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,492</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,513</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>183,867</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>179,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>169,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill impairments:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>108,792</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>122,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>183,867</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>179,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>291,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">CAPITAL
    EXPENDITURES&nbsp;</FONT></B><FONT color="#AADD6D">...&nbsp;</FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>74,297</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>65,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>56,613</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>22,582</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>9,503</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,531</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>46,463</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>209,458</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>123,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>148,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><FONT color="#AADD6D">IDENTIFIABLE
    ASSETS&nbsp;</FONT></B><FONT color="#AADD6D">...
    </FONT></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>716,981</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>666,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>354,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mortgage Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,336,920</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,108,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,241,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>701,763</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>637,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>677,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,481,127</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,624,383</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,423,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,302,492</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,196,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>969,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,666,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="13" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 75</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;21: QUARTERLY FINANCIAL DATA (UNAUDITED)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="20" align="right" nowrap>(in 000s, except per share amounts)</TD><TD></TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="4" align="left" nowrap>Fiscal Year 2005 Quarter Ended</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fiscal Year 2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>April&nbsp;30, 2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>January&nbsp;31, 2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>January&nbsp;31, 2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,355,279</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,032,007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,036,236</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,003,055</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>151,683</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>153,278</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>376,349</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>59,991</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>57,513</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>626,706</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>91,692</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>95,765</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.83</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.79</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.56</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.58</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.77</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3.72</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.55</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.57</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="22" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="4" align="left" nowrap>Fiscal Year 2005 Quarter Ended</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>October&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>October&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>July&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>July&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>539,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>541,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>482,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>486,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(85,924</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(79,818</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(72,564</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(58,800</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33,725</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(29,946</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(28,481</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,058</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,199</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(49,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(44,083</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(36,742</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.32</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.30</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.26</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.22</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.32</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.30</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.26</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(.22</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Fiscal&nbsp;Year&nbsp;2004&nbsp;Quarter&nbsp;Ended</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fiscal Year 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fiscal Year 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>April&nbsp;30, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>April&nbsp;30, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>January&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,224,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,197,760</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,200,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>962,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,164,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>952,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>949,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>176,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>459,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>376,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>365,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>704,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>575,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>584,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>106,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>697,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>575,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>584,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>106,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.96</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 76</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Fiscal&nbsp;Year&nbsp;2004&nbsp;Quarter</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Reported</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>As Restated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="right" nowrap>Ended</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>January&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>October&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>October&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>July&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>July&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>974,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>568,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>573,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>495,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>499,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="right" valign="bottom">
    &nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>181,406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,920</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>111,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="right" valign="bottom">
    &nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>111,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,376</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="right" valign="bottom">
    &nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Before change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
We restated our previously issued consolidated financial
statements, including each of the quarters in the nine months
ended January&nbsp;31, 2005 and the fiscal years ended
April&nbsp;30, 2004 and 2003. See note&nbsp;2 for a detailed
description of each restatement issue. The following is a
summary of the impact of the restatement on our quarterly
consolidated income statements for fiscal years 2005 and 2004:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="22" align="right" nowrap><B>(in 000s)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD align="left" nowrap>Fiscal&nbsp;Year&nbsp;2005&nbsp;Quarter&nbsp;Ended</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>January&nbsp;31, 2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>October&nbsp;31, 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>July&nbsp;31, 2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="left" nowrap><B>Impact&nbsp;on</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Revenues</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pretax Income</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Revenues</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pretax Income</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Revenues</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pretax Income</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(1,831</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of previously securitized residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,229</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,229</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lease accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,207</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(414</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(175</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Incentive compensation accrual</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Improper capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>404</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(140</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,229</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,595</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(2,478</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,327</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,341</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="27" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" nowrap>Fiscal Year 2004 Quarter Ended</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>April&nbsp;30, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>January&nbsp;31, 2004</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Impact on</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenues</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Pretax Income</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenues</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Pretax Income</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of previously securitized residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lease accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(608</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(510</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Incentive compensation accrual</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Improper capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(323</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,605</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,690</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,202</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>388</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 77</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="18" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD align="left" nowrap>Fiscal Year 2004 Quarter Ended</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>October&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap>July&nbsp;31, 2003</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Impact on</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenues</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Pretax Income</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Revenues</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Pretax Income</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,831</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of previously securitized residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lease accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(216</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Incentive compensation accrual</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,018</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Improper capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,074</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,073</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="17" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,744</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,119</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(838</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(882</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(906</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,237</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="19" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
The accumulation of four quarters in fiscal years 2005 and 2004
for earnings per share may not equal the related per share
amounts for the years ended April&nbsp;30, 2005 and 2004 due to
the repurchase of treasury shares, the timing of the exercise of
stock options, and the antidilutive effect of stock options in
the first two quarters.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>First Quarter</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Second Quarter</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Third Quarter</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fourth Quarter</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Fiscal Year</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Fiscal year 2005&nbsp;</B>...</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.22</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.22</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.22</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.20</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock price range:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    High</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>55.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>50.49</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>51.50</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>50.00</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>55.86</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Low</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>46.85</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>45.98</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>45.13</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.16</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>44.16</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Fiscal year 2004&nbsp;</B>...</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock price range:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    High</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>61.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>48.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>61.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Low</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTE&nbsp;22: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
Block Financial Corporation (&#147;BFC&#148;) is an indirect,
wholly-owned subsidiary of the Company. BFC is the Issuer and
H&#38;R Block, Inc. is the Guarantor of the $250.0&nbsp;million
6<FONT style="font-size: 70%"><SUP>3</SUP></FONT>/<FONT style="font-size: 60%">4</FONT>%&nbsp;Senior
Notes issued on October&nbsp;21, 1997, the $500.0&nbsp;million
8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>%&nbsp;Senior
Notes issued on April&nbsp;13, 2000 and the $400.0&nbsp;million
5.125%&nbsp;Senior Notes issued on October&nbsp;26, 2004. Our
guarantee is full and unconditional. The following condensed
consolidating financial statements present separate information
for BFC, the Company and for our other subsidiaries, and should
be read in conjunction with our consolidated financial
statements.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
These condensed consolidating financial statements have been
prepared using the equity method of accounting. Income of
subsidiaries is, therefore, reflected in our investment in
subsidiaries account. The elimination entries eliminate
investments in subsidiaries, related stockholder&#146;s equity
and other intercompany balances and transactions. The income
statements and statements of cash flows for the twelve months
ended April&nbsp;30, 2004 and 2003 and balance sheet as of
April&nbsp;30, 2004 have been adjusted to reflect intercompany
royalties between BFC and other subsidiaries. These adjustments
have no effect on H&#38;R&nbsp;Block, Inc. (Guarantor) or
Consolidated H&#38;R&nbsp;Block.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 78</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATING INCOME STATEMENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3" align="left" nowrap>Year Ended April&nbsp;30, 2005</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,871,703</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,565,496</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(17,180</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,420,019</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>404,205</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,595,199</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(184</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,999,220</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>385,908</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>30,513</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>416,421</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>479,136</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>487,419</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(14,430</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>952,125</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,269,249</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,113,131</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(14,614</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,367,766</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>602,454</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>452,365</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(2,566</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,052,253</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>59,247</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,293</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(173</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>62,367</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>17,277</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>10,552</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,017,715</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,829</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>560,484</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>459,624</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(1,020,108</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,017,715</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>206,572</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>175,969</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(382,541</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>381,858</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>353,912</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>283,655</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(637,567</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>635,857</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="25" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30, 2004</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="right" nowrap>(as restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,844,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,419,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(16,338</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,247,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>372,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,422,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(283</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,794,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>380,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>399,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>464,401</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,682</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>848,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,127,370</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,912,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,965</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,023,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>717,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>507,310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(373</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,224,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>38,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,162,975</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>679,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>484,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,163,348</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,162,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>263,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(447,511</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>447,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before change in accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>415,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(715,837</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,359</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>415,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>293,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(709,478</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 79</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30, 2003</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD align="right" nowrap>(as restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,551,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,192,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(12,956</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,731,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of service revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>304,947</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,320,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,625,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of other revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>285,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,749</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>429,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>467,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,197</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>883,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 8pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,019,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,803,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,936</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,809,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>532,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>389,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>921,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,835</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(855,564</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,962</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income before taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>485,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>369,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(855,584</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>855,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>232,577</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>145,381</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(377,958</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>253,416</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>224,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(477,626</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>477,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATING BALANCE SHEETS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>April&nbsp;30, 2005</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash&nbsp;&#38; cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>162,983</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>937,230</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,100,213</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash&nbsp;&#38; cash equivalents&nbsp;&#151; restricted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>488,761</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>28,148</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>516,909</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables from customers, brokers and dealers, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>590,226</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>590,226</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>101</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>199,990</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>218,697</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>418,788</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets and goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>421,036</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>842,003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,263,039</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments in subsidiaries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>4,878,783</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>210</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>449</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(4,878,783</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>659</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,407,082</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>243,007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(640</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,649,449</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,878,884</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3,270,288</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,269,534</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(4,879,423</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable to customers, brokers and dealers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>950,684</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>950,684</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>896,591</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>26,482</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>923,073</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>532,562</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,156,583</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,689,155</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>2,902,511</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(653,908</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(2,250,521</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,918</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,976,371</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,544,359</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>3,336,990</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(4,881,349</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,976,371</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>4,878,884</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>3,270,288</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>2,269,534</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>(4,879,423</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>5,539,283</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 80</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>April&nbsp;30, 2004 (as</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="right" nowrap>restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash&nbsp;&#38; cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>133,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>939,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,072,745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash&nbsp;&#38; cash equivalents&nbsp;&#151; restricted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>532,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables from customers, brokers and dealers, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>625,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>625,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>178,851</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>329,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Intangible assets and goodwill, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>457,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>829,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,286,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments in subsidiaries</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,214,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,214,499</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(145</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,125,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>247,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(373</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,372,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,214,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,024,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,208,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,214,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable to customers, brokers and dealers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,065,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,065,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>498,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>545,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>580,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,204,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>561</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,801,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,378,840</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,187</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,061,092</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(561</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,819,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,196,935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,017,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,214,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,819,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,214,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,024,097</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,208,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(4,214,872</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,232,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="right" nowrap>2005</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>39,134</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>91,081</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>383,578</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>513,793</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received on residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,045</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,045</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property&nbsp;&#38; equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(66,255</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(143,203</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(209,458</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments made for business acquisitions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(37,621</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(37,621</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>497,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(497,774</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>60,424</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(7,800</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>52,624</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>497,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>130,214</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(188,624</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(497,774</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(58,410</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(5,191,623</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(5,191,623</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,191,623</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>5,191,623</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of long- term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(250,000</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(250,000</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>395,221</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>395,221</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on acquisition debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(25,664</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(25,664</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(142,988</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(142,988</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(530,022</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(530,022</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,102</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>136,102</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(336,721</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(161,053</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>497,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,564</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(10,564</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(536,908</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(191,500</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(197,281</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>497,774</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(427,915</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>29,795</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>(2,327</B></TD>
    <TD align="left" valign="bottom" nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>27,468</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>133,188</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>939,557</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap><B>1,072,745</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>162,983</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>937,230</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom"><B>$</B></TD>
    <TD align="right" valign="bottom" nowrap><B>1,100,213</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 81</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="right" nowrap>(in 000s)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="right" nowrap>2004 (as restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>64,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>184,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>677,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>926,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received on residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>193,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property&nbsp;&#38; equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,229</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(88,344</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(127,573</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments made for business acquisitions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,865</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,865</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(473,521</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>220,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(351,556</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(473,521</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(131,133</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,618,853</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,618,853</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,618,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,618,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on acquisition debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(59,003</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(138,397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(138,397</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(519,862</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(519,862</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>119,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>119,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(453,477</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,044</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(538,303</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(453,477</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(81,092</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>473,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(599,351</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(48,105</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>244,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>695,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>875,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>132,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>939,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,071,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" nowrap>Year Ended April&nbsp;30,</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block, Inc.</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>BFC</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Consolidated</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="right" nowrap>2003 (as restated)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Guarantor)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>(Issuer)</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Subsidiaries</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Eliminations</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>H&#38;R Block</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>140,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>513,648</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>690,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash received on residual interests</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sales of residual interests in securitizations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property&nbsp;&#38; equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,999</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(112,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150,897</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments made for business acquisitions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,408</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,408</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,583</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,480</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(118,463</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(280,583</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repayments of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,925,516</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,925,516</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of commercial paper</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,925,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,925,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on acquisition debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57,469</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(57,469</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(125,898</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Acquisition of treasury shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from issuance of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net intercompany advances</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(402,197</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,344</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,344</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(317,143</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(402,197</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>280,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(376,956</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,778</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>456,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>439,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>197,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>238,186</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>436,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of the year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>180,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>695,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>875,353</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="21" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 82</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">
<A name='123'></A>
</DIV>

<!-- link1 "ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>ITEM&nbsp;9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
None.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='124'></A>
</DIV>

<!-- link1 "ITEM 9A. CONTROLS AND PROCEDURES" -->

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>ITEM&nbsp;9A.&nbsp;CONTROLS AND PROCEDURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">(a)&nbsp;EVALUATION OF DISCLOSURE
CONTROLS AND
PROCEDURES</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT> We
have established disclosure controls and procedures
(&#147;Disclosure Controls&#148;) to ensure that information
required to be disclosed in the Company&#146;s reports filed
under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time
periods specified in the U.S. Securities and Exchange
Commission&#146;s rules and forms. Disclosure Controls are also
designed to ensure that such information is accumulated and
communicated to management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure. Our Disclosure Controls were designed to provide
reasonable assurance that the controls and procedures would meet
their objectives. Our management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that our
Disclosure Controls will prevent all error and all fraud. A
control system, no matter how well designed and operated, can
provide only reasonable assurance of achieving the designed
control objectives and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by
collusions of two or more people, or by management override of
the control. Because of the inherent limitations in a
cost-effective, maturing control system, misstatements due to
error or fraud may occur and not be detected.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
As of the end of the period covered by this Form&nbsp;10-K, we
evaluated the effectiveness of the design and operation of our
Disclosure Controls. The controls evaluation was done under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer. Based
on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our Disclosure Controls
and procedures were not effective as of the end of the period
covered by this Annual Report on Form&nbsp;10-K because of the
material weakness in internal control over financial reporting
discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">(b)&nbsp;MANAGEMENT&#146;S REPORT ON
INTERNAL CONTROL OVER FINANCIAL
REPORTING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT>
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules&nbsp;13a-15(f). Under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in
&#147;Internal Control&nbsp;&#150; Integrated Framework&#148;
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (&#147;COSO&#148;) as of April&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Based on our assessment, management determined that a material
weakness existed in the Company&#146;s internal controls over
accounting for income taxes as of April&nbsp;30, 2005.
Specifically, the Company did not maintain sufficient resources
in the corporate tax function to accurately identify, evaluate
and report, in a timely manner, non-routine and complex
transactions. In addition, the Company had not completed the
requisite historical analysis and related reconciliations to
ensure tax balances were appropriately stated prior to the
completion of the Company&#146;s internal control activities.
These deficiencies resulted in errors in the Company&#146;s
accounting for income taxes. These errors were corrected prior
to issuance of the consolidated financial statements as of and
for the year ended April&nbsp;30, 2005. In the aggregate, these
deficiencies represent a material weakness in internal control
over financial reporting on the basis that there is a more than
remote likelihood that a material misstatement of the
Company&#146;s annual or interim financial statements will not
be prevented or detected by its internal control over financial
reporting. Because of this material weakness in internal control
over financial reporting, management concluded that, as of
April&nbsp;30, 2005, the Company&#146;s internal control over
financial reporting was not effective based on the criteria set
forth by COSO.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
The Company&#146;s external auditors, KPMG LLP, an independent
registered public accounting firm, have issued an audit report
on our assessment of the Company&#146;s internal control over
financial reporting. This report appears on page&nbsp;44.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 83</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
<B><FONT color="#AADD6D">(c)&nbsp;CHANGES IN INTERNAL CONTROL
OVER FINANCIAL
REPORTING</FONT></B><FONT color="#AADD6D">&nbsp;...</FONT> As
disclosed most recently in our Quarterly Report on
Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2005,
management had identified an internal control deficiency in our
accounting for income taxes. We have dedicated substantial
resources to the review of our control processes and procedures
specifically related to accounting for income taxes. Based on
the results of this review, during the fourth quarter,
management completed numerous enhancements to improve our
internal controls over financial reporting, specifically those
related to accounting for income taxes, including the following
actions:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Implemented a comprehensive set of policies and procedures
    related to accounting for income taxes.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Filled senior-level positions in the corporate tax department
    with experienced individuals focusing on corporate tax,
    state/local tax, and mortgage accounting.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Engaged a qualified third-party firm to provide supplementary
    assistance, REMIC transaction tax expertise, and to assess the
    tax implications of select historical and future securitizations
    and the adequacy of the model used by Mortgage Services to track
    the related book/tax basis adjustments.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Increased the formality and rigor around the operation of key
    controls.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Other than the changes outlined above, there were no changes
that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
In order to remediate the material weakness identified by
management as of April&nbsp;30, 2005, and continuing thereafter,
management completed the requisite historical analysis including
creation of the necessary tax basis balance sheets and current
and deferred reconciliations required and related internal
control testing to ensure propriety of all tax related financial
statement account balances as of this Form&nbsp;10-K filing
date. The Company believes it has established appropriate
controls and procedures and created the appropriate tax account
analysis and support subsequent to April&nbsp;30, 2005. In
addition to the above actions, management will conduct a
comprehensive evaluation of the corporate tax function,
including resource requirements, during the current fiscal year
to identify and implement additional improvements to ensure
compliance with the controls and procedures that have been put
in place to remediate deficiencies previously identified.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='125'></A>
</DIV>

<!-- link1 "ITEM 9B. OTHER INFORMATION" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM 9B.&nbsp;OTHER INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
None.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<A name='126'></A>
</DIV>

<!-- link1 "PART III" -->

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">PART&nbsp;III</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<A name='127'></A>
</DIV>

<!-- link1 "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM 10.&nbsp;DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The following information appearing in our definitive proxy
statement, to be filed no later than 120&nbsp;days after
April&nbsp;30, 2005, is incorporated herein by reference:
</DIV>

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<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Information appearing under the heading &#147;Election of
    Directors&#148;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Information appearing under the heading &#147;Section&nbsp;16(a)
    Beneficial Ownership Reporting Compliance&#148;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT color="#AADD6D"><FONT face="times new roman">&#9642;</FONT></FONT>&nbsp;</TD>
    <TD align="left">
    Information appearing under the heading &#147;Board of
    Directors&#146; Meetings and Committees&#148; regarding
    identification of the Audit Committee and Audit Committee
    financial experts.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
We have adopted a code of business ethics and conduct that
applies to our directors, officers and employees, including our
chief executive officer, chief financial officer, principal
accounting officer and persons performing similar functions. A
copy of the code of business ethics and conduct is available on
our website at <I>www.hrblock.com. </I>We intend to provide
information on our website regarding amendments to, or waivers
from, the code of business ethics and conduct.
</DIV>

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<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 84</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
Information about our executive officers as of May&nbsp;15, 2005
is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="24%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Name, age</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap>Current position</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap>Business experience since May&nbsp;1, 2000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Mark A. Ernst,<BR>
    </B>age&nbsp;47</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chairman of the Board, President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chairman of the Board of Directors since September 2002; Chief
    Executive Officer since January 2001; President of the Company
    since September 1999; Chief Operating Officer from September
    1998 through December 2000. Mr.&nbsp;Ernst has been a Member of
    the Board of Directors since September 1999.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>William L. Trubeck,<BR>
    </B>age&nbsp;58</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President and Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President and Chief Financial Officer since
    October 2004; Executive Vice President&nbsp;&#150; Western Group
    of Waste Management, Inc. from April 2003 until October 2004;
    Chief Administrative Officer of Waste Management, Inc. from May
    2002 until April 2003; Chief Financial Officer of Waste
    Management, Inc., from March 2000 to April 2003.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Jeffery W. Yabuki,<BR>
    </B>age&nbsp;45</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President and Chief Operating Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Operating Officer since April 2002; Executive Vice
    President since October 2000; President, H&#38;R&nbsp;Block
    Services, Inc. since October 2000; President, H&#38;R&nbsp;Block
    International from September 1999 until October 2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Melanie K. Coleman,<BR>
    </B>age&nbsp;40</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Corporate Controller
    <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Corporate Controller since October 2002;
    Assistant Vice President and Assistant Controller at Sprint
    Corporation (&#145;Sprint&#148;), from December 2000 until
    October 2002; Executive Assistant to the Chief Financial Officer
    of Sprint from September 1999 until December 2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Robert E. Dubrish,<BR>
    </B>age&nbsp;53</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President and Chief Executive Officer, Option One Mortgage
    Corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President and Chief Executive Officer, Option One Mortgage
    Corporation, since March 1996.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Timothy C. Gokey,<BR>
    </B>age&nbsp;43</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, Tax Services</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, Tax Services since June 2004; McKinsey&nbsp;&#38;
    Company from 1986 until June 2004.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Brad C. Iversen,<BR>
    </B>age&nbsp;55</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Marketing Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Marketing Officer since
    September 2003; Founded Catamount Marketing in 2002; Executive
    Vice President and Director of Marketing at Bank One Corporation
    from 1997 to 2002.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Linda M. McDougall,<BR>
    </B>age&nbsp;52</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Communications</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Communications since July 1999.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Timothy R. Mertz,<BR>
    </B>age&nbsp;54</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Corporate Tax</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Corporate Tax since October 2000; Vice President
    of Treasury for Payless Cashways, Inc., from September 1998
    through September 2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Tammy S. Serati,<BR>
    </B>age&nbsp;46</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President, Human Resources</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President, Human Resources since December 2002; Vice
    President, Human Resources Corporate Staffs, for Monsanto
    Agricultural Company, from May 2000 through November 2002.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Becky S. Shulman,<BR>
    </B>age&nbsp;40</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Treasurer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Treasurer since September 2001; Chief
    Investment Officer of U.S.&nbsp;Central Credit Union, from
    September 1998 until August 2001.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Nicholas J. Spaeth,<BR>
    </B>age&nbsp;55</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Legal Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Legal Officer since February
    2004; Senior Vice President, General Counsel and Secretary of
    Intuit, Inc. from August 2003 to February 2004; Senior Vice
    President, General Counsel and Secretary, GE&nbsp;Employers
    Reinsurance Corporation from September 2000 until August 2003;
    Partner at Cooley Godward LLP from March 1998 until September
    2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Steven Tait,<BR>
    </B>age&nbsp;45</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, RSM McGladrey Business Services, Inc.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, RSM McGladrey Business Services, Inc. since April
    2003; Executive Vice President, Sales&nbsp;&#38; Client
    Operations, Gartner, Inc., from June 2001 through March 2003;
    Senior Vice President, Sales and Operations at Gartner, Inc.
    from July 2000 until May 2001; President and Chief Executive
    Officer of Xerox Connect, a wholly-owned subsidiary of Xerox
    Corporation, from November 1999 until June 2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 85</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="24%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" nowrap>Name, age</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap>Current position</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap>Business experience since May&nbsp;1, 2000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Robert A. Weinberger,<BR>
    </B>age&nbsp;61</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Government Relations</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President, Government Relations, since March 1996.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Marc West,<BR>
    </B>age&nbsp;45</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Information Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Senior Vice President and Chief Information Officer since
    September 2004; Senior Vice President and Chief Information
    Officer of Electronic Arts Inc. from 2000 until September 2004.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Bret G. Wilson,<BR>
    </B>age&nbsp;46</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Secretary since October 2002; Vice President,
    Corporate Development and Risk Management from October 2000
    until October 2002; Vice President, Corporate Planning and
    Development from September 1999 until October 2000.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP>&nbsp;</TD>
    <TD align="left">
    As discussed in our Form&nbsp;8-K dated July&nbsp;5, 2005,
    Melanie K. Coleman resigned as Vice President and Corporate
    Controller of the Company, effective July&nbsp;31, 2005.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='128'></A>
</DIV>

<!-- link1 "ITEM 11. EXECUTIVE COMPENSATION" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM&nbsp;11.&nbsp;EXECUTIVE COMPENSATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation&nbsp;14A
not later than 120&nbsp;days after April&nbsp;30, 2005, in the
sections entitled &#147;Director Compensation&#148; and
&#147;Compensation of Executive Officers,&#148; and is
incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='129'></A>
</DIV>

<!-- link1 "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS" -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;12.&nbsp;</B></TD>
    <TD align="left">
    <B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation&nbsp;14A
not later than 120&nbsp;days after April&nbsp;30, 2005, in the
section titled &#147;Equity Compensation Plans&#148; and in the
section titled &#147;Information Regarding Security
Holders,&#148; and is incorporated herein by reference.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='130'></A>
</DIV>

<!-- link1 "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" -->

<DIV align="left" style="font-size: 10pt;">
<B>ITEM&nbsp;13.&nbsp;CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation&nbsp;14A
no later than 120&nbsp;days after April&nbsp;30, 2005, in the
section titled &#147;Employee Agreements, Change in Control and
Other Arrangements,&#148; and is incorporated herein by
reference.
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='131'></A>
</DIV>

<!-- link1 "ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES" -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;14.&nbsp;</B></TD>
    <TD align="left">
    <B>PRINCIPAL ACCOUNTING FEES AND SERVICES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
The information called for by this item is contained in our
definitive proxy statement filed pursuant to Regulation&nbsp;14A
no later than 120&nbsp;days after April&nbsp;30, 2005, in the
section titled &#147;Audit Fees,&#148; and is incorporated
herein by reference.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 86</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='132'></A>
</DIV>

<!-- link1 "PART IV" -->

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">PART&nbsp;IV</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='133'></A>
</DIV>

<!-- link1 "ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES" -->

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>ITEM&nbsp;15.&nbsp;</B></TD>
    <TD align="left">
    <B>EXHIBITS AND FINANCIAL STATEMENT SCHEDULES</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
(a)&nbsp;Documents filed as part of this Report:
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>1.&nbsp;</TD>
    <TD align="left">
    The following financial statements appearing in Item&nbsp;8:
    &#147;Consolidated Statements of Income and Comprehensive
    Income;&#148; &#147;Consolidated Balance Sheets;&#148;
    &#147;Consolidated Statements of Cash Flows;&#148; and
    &#147;Consolidated Statements of Stockholders&#146; Equity.&#148;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>2.&nbsp;</TD>
    <TD align="left">
    Financial Statement Schedule&nbsp;II&nbsp;&#150; Valuation and
    Qualifying Accounts with the related Reports of Independent
    Registered Public Accounting Firms. These will be filed with the
    SEC but will not be included in the printed version of the
    Annual Report to Shareholders.</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>3.&nbsp;</TD>
    <TD align="left">
    Exhibits: The list of exhibits in the Exhibit&nbsp;Index to this
    Report is incorporated herein by reference. The following
    exhibits are required to be filed as exhibits to this
    Form&nbsp;10-K:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.2</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of 2003 Long-Term Executive Compensation Plan Award
    Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.9</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of 1989 Stock Option Plan for Outside Directors Stock
    Option Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.33</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Leasing Operations Supplier Agreement (Products and/or Services)
    dated September&nbsp;11, 2003 between Wal*Mart Stores, Inc. and
    H&#38;R Block Services, Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.40</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of March&nbsp;8, 2005 among Option One Owner Trust 2001-2,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.46</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    March&nbsp;18, 2005 among Option One Owner Trust 2002-3, UBS
    Real Estate Securities Inc. and Option One Mortgage Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.47</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Sale and Servicing Agreement dated as of
    March&nbsp;18, 2005 among Option One Owner Trust 2002-3, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.48</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of April&nbsp;29, 2005 among Option One Owner Trust 2001-1A
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.49</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of April&nbsp;1, 2001 between Option One
    Owner Trust 2001-1A and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.50</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Four, dated April&nbsp;16, 2004, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.51</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Five, dated April&nbsp;30, 2004, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.52</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;29, 2005, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.53</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    April&nbsp;16, 2004 among Option One Owner Trust 2001-1A, Option
    One Loan Warehouse Corporation and Greenwich Capital Financial
    Products, Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.54</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Amended and Restated Note Purchase
    Agreement dated as of April&nbsp;29, 2005 among Option One Owner
    Trust 2001-1A, Greenwich Capital Financial Products, Inc. and
    Option One Loan Warehouse Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.55</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of April&nbsp;29, 2005 among Option One Owner Trust 2001-1B,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.56</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of April&nbsp;1, 2001 between Option One
    Owner Trust 2001-1B and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.57</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Five, dated April&nbsp;16, 2004, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.58</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;30, 2004, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.59</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;29, 2005, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 87</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.60</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    April&nbsp;16, 2004, among Option One Owner Trust 2001-1B,
    Option One Loan Warehouse Corporation and Steamboat Funding
    Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.61</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Amended and Restated Note Purchase
    Agreement dated as of April&nbsp;29, 2005, among Option One
    Owner Trust 2001-B, Steamboat Funding Corporation and Option One
    Loan Warehouse Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.62</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sale and Servicing Agreement dated as of August&nbsp;8, 2003
    among Option One Owner Trust 2003-4, Option One Loan Warehouse
    Corporation, Option One Mortgage Corporation and Wells Fargo
    Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.63</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Sale and Servicing Agreement dated as of
    August&nbsp;6, 2004 among Option One Owner Trust 2003-4, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.64</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Sale and Servicing Agreement dated as of
    August&nbsp;24, 2004 among Option One Owner Trust 2003-4, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.65</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of August&nbsp;8, 2003 between Option One
    Owner Trust 2003-4 and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.66</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Note Purchase Agreement dated as of August&nbsp;8, 2003 among
    Option One Mortgage Corporation, Option One Loan Warehouse
    Corporation, Option One Owner Trust 2003-4, Falcon Asset
    Securitization Corporation, Jupiter Securitization Corporation,
    Preferred Receivables Funding Corporation, financial
    institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.67</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Note Purchase Agreement dated as of
    August&nbsp;6, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.68</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Note Purchase Agreement dated as of
    August&nbsp;24, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.69</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;3 to Note Purchase Agreement dated as of
    October&nbsp;29, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.70</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;4 to Note Purchase Agreement dated as of
    November&nbsp;30, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.71</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;5 to Note Purchase Agreement dated
    January&nbsp;31, 2005, among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Computation of Ratio of Earnings to Fixed Charges for the five
    years ended April&nbsp;30, 2005.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    21</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subsidiaries of the Company.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    23.1</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    23.2</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    31.1</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Executive Officer pursuant to
    Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    31.2</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Financial Officer pursuant to
    Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    32.1</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Executive Officer pursuant to
    18&nbsp;U.S.C. 1350, as adopted by Section&nbsp;906 of the
    Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    32.2</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Financial Officer pursuant to
    18&nbsp;U.S.C. 1350, as adopted by Section&nbsp;906 of the
    Sarbanes-Oxley Act of 2002.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;
The exhibits will be filed with the SEC but will not be included
in the printed version of the Annual Report to Shareholders.
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 88</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='134'></A>
</DIV>

<!-- link1 "SIGNATURES" -->

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">SIGNATURES</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Pursuant to the requirements of Section&nbsp;13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
</DIV>

<DIV style="margin-top: 10pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    H&#38;R BLOCK, INC.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <IMG src="c91685c9168501.gif" alt="-s- Mark A. Ernst"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Mark A. Ernst</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Chairman of the Board, President and</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Chief Executive Officer</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">
July&nbsp;29, 2005
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated on July&nbsp;29, 2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="16%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168501.gif" alt="-s- Mark A. Ernst"><BR>
    Mark A. Ernst<BR>
    Chairman of the Board, President, Chief Executive Officer and
    Director (principal executive officer)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168504.gif" alt="-s- G. Kenneth Baum"><BR>
    G. Kenneth Baum<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168507.gif" alt="-s- Thomas M. Bloch"><BR>
    Thomas M. Bloch<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168510.gif" alt="-s- Donna R. Ecton"><BR>
    Donna R. Ecton<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168502.gif" alt="-s- Henry F. Frigon"><BR>
    Henry F. Frigon<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168505.gif" alt="-s- Roger W. Hale"><BR>
    Roger W. Hale<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168508.gif" alt="-s- David B. Lewis"><BR>
    David B. Lewis<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168511.gif" alt="-s- Tom D. Seip"><BR>
    Tom D. Seip<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168503.gif" alt="-s- Louis W. Smith"><BR>
    Louis W. Smith<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168506.gif" alt="-s- Rayford Wilkins, Jr."><BR>
    Rayford Wilkins,&nbsp;Jr.<BR>
    Director</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168509.gif" alt="-s- William L. Trubeck"><BR>
    William L. Trubeck<BR>
    Executive Vice President and Chief Financial Officer (principal
    accounting officer)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <IMG src="c91685c9168512.gif" alt="-s- Melanie K. Coleman"><BR>
    Melanie K. Coleman<BR>
    Vice President and Corporate Controller</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 89</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='135'></A>
</DIV>

<!-- link1 "EXHIBIT INDEX" -->

<DIV align="left" style="font-size: 10pt;">
<B><FONT color="#AADD6D">EXHIBIT INDEX</FONT></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The following exhibits are numbered in accordance with the
Exhibit&nbsp;Table of Item&nbsp;601 of Regulation&nbsp;S-K:
</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restated Articles of Incorporation of H&#38;R Block, Inc., as
    amended, filed as Exhibit&nbsp;3.2 to the Company&#146;s
    quarterly report on Form&nbsp;10-Q for the quarter ended
    October&nbsp;31, 2004, file number&nbsp;1-6089, are incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certificate of Amendment of Articles of Incorporation effective
    September&nbsp;30, 2004, filed as Exhibit&nbsp;3.1 to the
    Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended October&nbsp;31, 2004, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Bylaws of H&#38;R Block, Inc., as amended
    and restated as of June&nbsp;9, 2004, filed as Exhibit&nbsp;3.3
    to the Company&#146;s annual report on Form&nbsp;10-K for the
    year ended April&nbsp;30, 2004, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of October&nbsp;20, 1997, among H&#38;R
    Block, Inc., Block Financial Corporation and Bankers Trust
    Company, as Trustee, filed as Exhibit&nbsp;4(a) to the
    Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended October&nbsp;31, 1997, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Supplemental Indenture, dated as of April&nbsp;18, 2000,
    among H&#38;R Block, Inc., Block Financial Corporation, Bankers
    Trust Company and the Bank of New York, filed as
    Exhibit&nbsp;4(a) to the Company&#146;s current report on Form
    8-K dated April&nbsp;13, 2000, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Officer&#146;s Certificate, dated October&nbsp;26, 2004, in
    respect of 5.125%&nbsp;Notes due 2014 of Block Financial
    Corporation, filed as Exhibit&nbsp;4.1 to the Company&#146;s
    current report on Form 8-K dated October&nbsp;21, 2004, file
    number 1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of
    8<FONT style="font-size: 70%"><SUP>1</SUP></FONT>/<FONT style="font-size: 60%">2</FONT>%&nbsp;Senior
    Note due 2007 of Block Financial Corporation, filed as
    Exhibit&nbsp;4(b) to the Company&#146;s current report on Form
    8-K dated April&nbsp;13, 2000, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of 5.125%&nbsp;Note due 2014 of Block Financial
    Corporation, filed as Exhibit&nbsp;4.2 to the Company&#146;s
    current report on Form 8-K dated October&nbsp;21, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Copy of Rights Agreement dated March&nbsp;25, 1998, between
    H&#38;R Block, Inc. and ChaseMellon Shareholder Services,
    L.L.C., filed on July&nbsp;22, 1998 as Exhibit&nbsp;1 to the
    Company&#146;s Registration Statement on Form 8-A, file number
    1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Certificate of Designation, Preferences and Rights of
    Participating Preferred Stock of H&#38;R Block, Inc., filed as
    Exhibit&nbsp;4(e) to the Company&#146;s annual report on
    Form&nbsp;10-K for the fiscal year ended April&nbsp;30, 1995,
    file number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Certificate of Amendment of Certificate of Designation,
    Preferences and Rights of Participating Preferred Stock of
    H&#38;R Block, Inc., filed as Exhibit&nbsp;4(j) to the
    Company&#146;s annual report on Form&nbsp;10-K for the fiscal
    year ended April&nbsp;30, 1998, file number&nbsp;1-6089, is
    incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Certificate of Designation, Preferences and Rights of
    Delayed Convertible Preferred Stock of H&#38;R Block, Inc.,
    filed as Exhibit&nbsp;4(f) to the Company&#146;s annual report
    on Form&nbsp;10-K for the fiscal year ended April&nbsp;30, 1995,
    file number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The Company&#146;s 2003 Long-Term Executive Compensation Plan,
    as amended and restated as of September&nbsp;10, 2003, filed as
    Exhibit&nbsp;10.2 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended October&nbsp;31, 2003, file
    number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of 2003 Long-Term Executive Compensation Plan Award
    Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block Deferred Compensation Plan for Directors, as
    Amended and Restated effective July&nbsp;1, 2002, filed as
    Exhibit&nbsp;10.2 to the Company&#146;s annual report on
    Form&nbsp;10-K for the fiscal year ended April&nbsp;30, 2002,
    file number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block Deferred Compensation Plan for Executives, as
    Amended and Restated July&nbsp;1, 2002, filed as
    Exhibit&nbsp;10.3 to the Company&#146;s annual report on
    Form&nbsp;10-K for the fiscal year ended April&nbsp;30, 2002,
    file number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to the H&#38;R Block Deferred Compensation
    Plan for Executives, as Amended and Restated, effective as of
    March&nbsp;12, 2003, filed as Exhibit&nbsp;10.5 to the
    company&#146;s annual report on Form&nbsp;10-K for the fiscal
    year ended April&nbsp;30, 2003, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block Short-Term Incentive Plan, filed as
    Exhibit&nbsp;10.1 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended October&nbsp;31, 2000, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Summary of Non-Employee Director Cash Compensation, filed as
    Exhibit&nbsp;10.1 to the Company&#146;s current report on Form
    8-K dated March&nbsp;16, 2005, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The Company&#146;s 1989 Stock Option Plan for Outside Directors,
    as amended and restated as of September&nbsp;8, 2004, filed as
    Exhibit&nbsp;10.5 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended October&nbsp;31, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of 1989 Stock Option Plan for Outside Directors Stock
    Option Agreement.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block Stock Plan for Non-Employee Directors, as
    amended August&nbsp;1, 2001, filed as Exhibit&nbsp;10.3 to the
    Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended October&nbsp;31, 2001, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block, Inc. 2000 Employee Stock Purchase Plan, as
    amended August&nbsp;1, 2001, filed as Exhibit&nbsp;10.2 to the
    Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended October&nbsp;31, 2001, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    The H&#38;R Block, Inc. Executive Survivor Plan (as Amended and
    Restated) filed as Exhibit&nbsp;10.4 to the Company&#146;s
    quarterly report on Form&nbsp;10-Q for the quarter ended
    October&nbsp;31, 2000, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 90</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment to the H&#38;R Block, Inc. Executive Survivor
    Plan (as Amended and Restated), filed as Exhibit&nbsp;10.9 to
    the Company&#146;s annual report on Form&nbsp;10-K for the
    fiscal year ended April&nbsp;30, 2002, file number&nbsp;1-6089,
    is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amendment to the H&#38;R Block, Inc. Executive Survivor
    Plan (as Amended and Restated), effective as of March&nbsp;12,
    2003, filed as Exhibit&nbsp;10.12 to the company&#146;s annual
    report on Form&nbsp;10-K for the fiscal year ended
    April&nbsp;30, 2003, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated July&nbsp;16, 1998, between the
    Company and Mark A. Ernst, filed as Exhibit&nbsp;10(a) to the
    Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended July&nbsp;31, 1998, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment to Employment Agreement dated June&nbsp;30, 2000,
    between HRB Management, Inc. and Mark A. Ernst, filed as
    Exhibit&nbsp;10.1 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended July&nbsp;31, 2000, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated September&nbsp;7, 1999, between HRB
    Management, Inc. and Jeffery W. Yabuki, filed as
    Exhibit&nbsp;10.4 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2000, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of October&nbsp;4, 2004 between
    HRB Management, Inc. and William L. Trubeck, filed as
    Exhibit&nbsp;10.2 to the Company&#146;s current report on Form
    8-K/A Amendment No.&nbsp;1 dated September&nbsp;9, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of February&nbsp;2, 2004, between
    HRB Management, Inc. and Nicholas J. Spaeth, filed as
    Exhibit&nbsp;10.16 to the company&#146;s annual report on
    Form&nbsp;10-K for the fiscal year ended April&nbsp;30, 2004,
    file number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated September&nbsp;2, 2003, between HRB
    Management, Inc. and Brad C. Iversen, filed as Exhibit&nbsp;10.1
    to the Company&#146;s quarterly report on Form&nbsp;10-Q for the
    quarter ended January&nbsp;31, 2004, file number&nbsp;1-6089, is
    incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement between Option One Mortgage Corporation and
    Robert E. Dubrish, executed on February&nbsp;9, 2002, filed as
    Exhibit&nbsp;10.2 to the Company&#146;s quarterly report on
    Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2002, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.22 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated December&nbsp;2, 2002 between HRB
    Management, Inc. and Tammy S. Serati, filed as Exhibit&nbsp;10.4
    to the quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2003, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.23 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of April&nbsp;1, 2003 between HRB
    Business Services, Inc. and Steven Tait, filed as
    Exhibit&nbsp;10.23 to the annual report on Form&nbsp;10-K for
    the fiscal year ended April&nbsp;30, 2003, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.24 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of September&nbsp;15, 2004 between
    HRB Management, Inc. and Marc West, filed as Exhibit&nbsp;10.1
    to the quarterly report on Form&nbsp;10-Q for the quarter ended
    October&nbsp;31, 2004, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.25 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement dated as of June&nbsp;28, 2004 between
    H&#38;R Block Services, Inc. and Timothy C. Gokey, filed as
    Exhibit&nbsp;10.4 to the quarterly report on Form&nbsp;10-Q for
    the quarter ended July&nbsp;31, 2004, file number&nbsp;1-6089,
    is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.26 *</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Termination Agreement dated January&nbsp;7, 2005 between H&#38;R
    Block, Inc., H&#38;R Block Financial Advisors, Inc. and Brian L.
    Nygaard, filed as Exhibit&nbsp;10.1 to the Company&#146;s
    quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2005, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.27</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Refund Anticipation Loan Operations
    Agreement dated as of June&nbsp;9, 2003, between H&#38;R Block
    Services, Inc., Household Tax Masters, Inc. and Beneficial
    Franchise Company, filed as Exhibit&nbsp;10.27 to the annual
    report on Form&nbsp;10-K for the fiscal year ended
    April&nbsp;30, 2003, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.28</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fourth Amended and Restated Refund Anticipation Loan
    Participation Agreement dated as of December&nbsp;31, 2004,
    between Block Financial Corporation, HSBC Taxpayer Financial
    Services, Inc. and Household Tax Masters Acquisition
    Corporation, filed as Exhibit&nbsp;10.2 to the quarterly report
    on Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2005,
    file number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.29</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    2004 Amendment to Second Amended and Restated Refund
    Anticipation Loan Operations Agreement dated as of
    August&nbsp;20, 2004, by and among H&#38;R Block Services, Inc.,
    Household Tax Masters, Inc., and Beneficial Franchise Company,
    filed as Exhibit&nbsp;10.3 to the quarterly report on
    Form&nbsp;10-Q for the quarter ended October&nbsp;31, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.**</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    364-Day Credit and Guarantee Agreement dated as of
    August&nbsp;11, 2004 among Block Financial Corporation, H&#38;R
    Block, Inc., Bank of America, N.A., Barclays Bank PLC, HSBC Bank
    USA, National Association, The Royal Bank of Scotland PLC,
    JPMorgan Chase Bank, J.P.&nbsp;Morgan Securities, Inc. and other
    lending parties thereto, filed as Exhibit&nbsp;10.1 to the
    quarterly report on Form&nbsp;10-Q for the quarter ended
    July&nbsp;31, 2004, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.31</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Five-Year Credit and Guarantee Agreement dated as of
    August&nbsp;11, 2004 among Block Financial Corporation, H&#38;R
    Block, Inc., Bank of America, N.A., Barclays Bank PLC, HSBC Bank
    USA, National Association, The Royal Bank of Scotland PLC,
    JPMorgan Chase Bank, J.P.&nbsp;Morgan Securities, Inc. and other
    lending parties thereto, filed as Exhibit&nbsp;10.2 to the
    quarterly report on Form&nbsp;10-Q for the quarter ended
    July&nbsp;31, 2004, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.32</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    License Agreement dated as of June&nbsp;30, 2004 by and between
    Sears, Roebuck and Co. and H&#38;R Block Services, Inc., filed
    as Exhibit&nbsp;10.3 to the quarterly report on Form&nbsp;10-Q
    for the quarter ended July&nbsp;31, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.33</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Leasing Operations Supplier Agreement (Products and/or Services)
    dated as of September&nbsp;11, 2003 between Wal*Mart Stores,
    Inc. and H&#38;R Block Services, Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Standard Form of Agreement Between Owner and Designer/Builder
    dated as of May&nbsp;5, 2003 by and between H&#38;R Block Tax
    Services, Inc. and J.E. Dunn Construction Company, filed as
    Exhibit&nbsp;10.2 to the quarterly report on Form&nbsp;10-Q for
    the quarter ended October&nbsp;31, 2004, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 91</FONT></B></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.35</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Loan Purchase and Contribution
    Agreement dated as of November&nbsp;14, 2003 between Option One
    Loan Warehouse Corporation and Option One Mortgage Corporation,
    filed as Exhibit&nbsp;10.3 to the quarterly report on
    Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2005, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.36</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Sales and Servicing Agreement dated
    November&nbsp;12, 2004 among Option One Owner Trust 2003-5,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank, N.A., filed as
    Exhibit&nbsp;10.4 to the quarterly report on Form&nbsp;10-Q for
    the quarter ended January&nbsp;31, 2005, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.37</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Note Purchase Agreement dated November&nbsp;14, 2003 between
    Option One Owner Trust 2003-5, Option One Loan Warehouse
    Corporation and Citigroup Global Markets Realty Corp., filed as
    Exhibit&nbsp;10.5 to the quarterly report on Form&nbsp;10-Q for
    the quarter ended January&nbsp;31, 2005, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.38</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number One to the Note Purchase Agreement, dated
    November&nbsp;14, 2004, among Option One Owner Trust 2003-5,
    Option One Loan Warehouse Corporation and Citigroup Global
    Markets Realty Corp., filed as Exhibit&nbsp;10.6 to the
    quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2005, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.39</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of November&nbsp;1, 2003 between Option One
    Owner Trust 2003-5 and Wells Fargo Bank Minnesota, National
    Association, filed as Exhibit&nbsp;10.7 to the quarterly report
    on Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2005,
    file number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.40</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of March&nbsp;8, 2005 among Option One Owner Trust 2001-2,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.41</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    November&nbsp;24, 2003, among Option One Owner Trust 2001-2,
    Option One Loan Warehouse Corporation and Bank of America, N.A.,
    filed as Exhibit&nbsp;10.11 to the quarterly report on
    Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2005, file
    number&nbsp;1-6089, is incorporated herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.42</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number One to the Amended and Restated Note Purchase
    Agreement, dated as of December&nbsp;17, 2004, among Option One
    Owner Trust 2001-2, Option One Loan Warehouse Corporation and
    Bank of America, N.A., filed as Exhibit&nbsp;10.12 to the
    quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2005, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.43</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Two to the Amended and Restated Note Purchase
    Agreement, dated as of February&nbsp;15, 2005, among Option One
    Owner Trust 2001-2, Option One Loan Warehouse Corporation and
    Bank of America, N.A., filed as Exhibit&nbsp;10.13 to the
    quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2005, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.44</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Indenture dated as of November&nbsp;25,
    2003 between Option One Owner Trust 2001-2 and Wells Fargo Bank
    Minnesota, National Association, filed as Exhibit&nbsp;10.14 to
    the quarterly report on Form&nbsp;10-Q for the quarter ended
    January&nbsp;31, 2005, file number&nbsp;1-6089, is incorporated
    herein by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.45</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Letter Agreement dated as of April&nbsp;1, 2000 among Option One
    Mortgage Corporation and Bank of America N.A., filed as
    Exhibit&nbsp;10.15 to the quarterly report on Form&nbsp;10-Q for
    the quarter ended January&nbsp;31, 2005, file
    number&nbsp;1-6089, is incorporated by reference.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.46</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    March&nbsp;18, 2005 among Option One Owner Trust 2002-3, UBS
    Real Estate Securities Inc. and Option One Mortgage Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.47</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Sale and Servicing Agreement dated as of
    March&nbsp;18, 2005, among Option One Owner Trust 2002-3, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.48</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of April&nbsp;29, 2005 among Option One Owner Trust 2001-1A,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.49</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of April&nbsp;1, 2001 between Option One
    Owner Trust 2001-1A and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.50</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Four, dated April&nbsp;16, 2004, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.51</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Five, dated April&nbsp;30, 2004, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.52</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;29, 2005, to Indenture
    between Option One Owner Trust 2001-1A and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.53</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    April&nbsp;16, 2004, among Option One Owner Trust 2001-1A,
    Option One Loan Warehouse Corporation and Greenwich Capital
    Financial Products, Inc.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.54</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Amended and Restated Note Purchase
    Agreement dated as of April&nbsp;29, 2005 among Option One Owner
    Trust 2001-1A, Greenwich Capital Financial Products, Inc. and
    Option One Loan Warehouse Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.55</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amended and Restated Sale and Servicing Agreement dated
    as of April&nbsp;29, 2005 among Option One Owner Trust 2001-1B,
    Option One Loan Warehouse Corporation, Option One Mortgage
    Corporation and Wells Fargo Bank, N.A.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.56</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of April&nbsp;1, 2001 between Option One
    Owner Trust 2001-1B and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.57</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Five, dated April&nbsp;16, 2004, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.58</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;30, 2004, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

</TABLE>
</CENTER>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD align="center">
    <B><FONT color="#AADD6D"> 92</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.59</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment Number Six, dated April&nbsp;29, 2005, to Indenture
    between Option One Owner Trust 2001-1B and Wells Fargo Bank
    Minnesota, National Association, as amended and restated through
    and including November&nbsp;25, 2003.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.60</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Note Purchase Agreement dated as of
    April&nbsp;16, 2004, among Option One Owner Trust 2001-1B,
    Option One Loan Warehouse Corporation and Steamboat Funding
    Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.61</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Amended and Restated Note Purchase
    Agreement dated as of April&nbsp;29, 2005 among Option One Owner
    Trust 2001-1B, Steamboat Funding Corporation and Option One Loan
    Warehouse Corporation.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.62</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sale and Servicing Agreement dated as of August&nbsp;8, 2003
    among Option One Owner Trust 2003-4, Option One Loan Warehouse
    Corporation, Option One Mortgage Corporation and Wells Fargo
    Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.63</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Sale and Servicing Agreement dated as of
    August&nbsp;6, 2004 among Option One Owner Trust 2003-4, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.64</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Sale and Servicing Agreement dated as of
    August&nbsp;24, 2004 among Option One Owner Trust 2003-4, Option
    One Loan Warehouse Corporation, Option One Mortgage Corporation
    and Wells Fargo Bank Minnesota, National Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.65</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of August&nbsp;8, 2003 between Option One
    Owner Trust 2003-4 and Wells Fargo Bank Minnesota, National
    Association.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.66</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Note Purchase Agreement dated as of August&nbsp;8, 2003 among
    Option One Mortgage Corporation, Option One Loan Warehouse
    Corporation, Option One Owner Trust 2003-4, Falcon Asset
    Securitization Corporation, Jupiter Securitization Corporation,
    Preferred Receivables Funding Corporation, financial
    institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.67</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Note Purchase Agreement dated as of
    August&nbsp;6, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.68</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Note Purchase Agreement dated as of
    August&nbsp;24, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.69</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;3 to Note Purchase Agreement dated as of
    October&nbsp;29, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.70</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;4 to Note Purchase Agreement dated as of
    November&nbsp;30, 2004 among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.71</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;5 to Note Purchase Agreement dated
    January&nbsp;31, 2005, among Option One Mortgage Corporation,
    Option One Loan Warehouse Corporation, Option One Owner Trust
    2003-4, Falcon Asset Securitization Corporation, Jupiter
    Securitization Corporation, Preferred Receivables Funding
    Corporation, financial institutions thereto and Bank One, NA.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Computation of Ratio of Earnings to Fixed Charges for the five
    years ended April&nbsp;30, 2005.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subsidiaries of the Company.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Executive Officer pursuant to
    Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>31</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Financial Officer pursuant to
    Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Executive Officer pursuant to
    18&nbsp;U.S.C. 1350, as adopted by Section&nbsp;906 of the
    Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>32</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Certification by Chief Financial Officer pursuant to
    18&nbsp;U.S.C. 1350, as adopted by Section&nbsp;906 of the
    Sarbanes-Oxley Act of 2002.</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 8pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="99%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;*&nbsp;</TD>
    <TD align="left">
    Indicates management contracts, compensatory plans or
    arrangements.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    Confidential Information has been omitted from this exhibit and
    filed separately with the Commission pursuant to a confidential
    treatment request under Rule&nbsp;24b-2.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="99%"></TD>
    <TD width="1%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center">
    <B><FONT color="#AADD6D"> 93</FONT></B></TD>
</TR>

</TABLE>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>H&#38;R BLOCK, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>SCHEDULE&nbsp;II&nbsp;&#150; VALUATION AND QUALIFYING
ACCOUNTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>YEARS ENDED APRIL&nbsp;30, 2005, 2004 AND 2003</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>



<TR valign="bottom" style="font-size: 1px">
    <TD colspan="23" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR>
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap>Additions</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="9">&nbsp;</TD>
</TR>



<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Balance at</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="right" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="9">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Beginning of</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Charged to Costs</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Charged to</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Balance at End</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="right" nowrap>Description</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Period</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>and Expenses</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Other</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>Deductions</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right" nowrap>of Period</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for Doubtful Accounts&nbsp;&#150; deducted from
    accounts receivable in the balance sheet</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,521,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>52,221,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>66,712,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,030,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,941,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>53,663,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,083,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,521,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>65,842,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>49,748,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>91,649,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,941,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="24" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

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    <TD width="99%"></TD>
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    <TD align="center">
    <B><FONT color="#AADD6D"> 94</FONT></B></TD>
    <TD>&nbsp;</TD>
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</TABLE>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Report of Independent Registered Public Accounting Firm on Schedule</B>
</DIV>

<p>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">To the Board of Directors and Stockholders of H&#038;R Block, Inc.:</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Under date of July&nbsp;29, 2005, we reported on the consolidated balance sheets of H&#038;R Block, Inc. (the
Company) as of April&nbsp;30, 2005 and 2004, and the related consolidated statements of income and
comprehensive income, stockholders&#146; equity, and cash flows for the years then ended, which are
included in the Company&#146;s annual report filed on Form&nbsp;10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related financial statement
schedule for the years ended April&nbsp;30, 2005 and 2004 included in
the Form&nbsp;10-K. In our opinion,
such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth
therein.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The audit report on the consolidated financial statements of H&#038;R Block, Inc. referred to above
contains an explanatory paragraph stating that, as discussed in note 1 to the consolidated
financial statements, the Company changed its method of accounting to adopt Emerging Issues Task
Force Issue No.&nbsp;00-21, <I>Revenue Arrangements with Multiple Deliverables; </I>and Statement of Financial
Accounting Standards No.&nbsp;148, <I>Accounting for Stock-Based Compensation&#151;Transition and Disclosure,</I>
during the year ended April&nbsp;30, 2004.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">The audit report on the consolidated financial statements of H&#038;R Block, Inc. referred to above
contains an explanatory paragraph stating that, as discussed in note 2 to the consolidated
financial statements, the Company restated its financial statements for its fiscal year ended April
30, 2004.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/ KPMG
LLP<br>Kansas City, Missouri<BR>
July&nbsp;29, 2005
</DIV>


<P align="center" style="font-size: 10pt">
</DIV>

<!-- PAGEBREAK -->
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 8pt;">
<FONT color="#AADD6D"> H&#38;R BLOCK 2005 Form 10K
</FONT>
</DIV>

<P><HR size="5" noshade color="#000000"><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 1pt;">
<DIV style="width: 100%; border-top: 0.2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE</B>
</DIV>

<DIV align="left" style="font-size: 10pt;">
To the Board of Directors of H&#38;R Block, Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt;">&nbsp;&nbsp;
Our audit of the consolidated financial statements referred to
in our report dated June&nbsp;10, 2003, except for Note&nbsp;2
as to which the date is July&nbsp;29, 2005, appearing in the
2005 Annual Report to Shareholders of H&#38;R Block, Inc. also
included an audit of the financial statement schedule listed in
Item&nbsp;15(a)(2) of this Form&nbsp;10-K for the year ended
April&nbsp;30, 2003. In our opinion, this financial statement
schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
/s/&nbsp;&nbsp;PricewaterhouseCoopers LLP
</DIV>

<DIV align="left" style="font-size: 10pt;">
Kansas City, Missouri
</DIV>

<DIV align="left" style="font-size: 10pt;">
June&nbsp;10, 2003, except for Note&nbsp;2
</DIV>

<DIV align="left" style="font-size: 10pt;">
as to which the date is July&nbsp;29, 2005
</DIV>

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    <B><FONT color="#AADD6D"> 95</FONT></B></TD>
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<FILENAME>c91685exv10w2.txt
<DESCRIPTION>FORM OF 2003 LONG-TERM EXECUTIVE COMPENSATION PLAN AWARD AGREEMENT
<TEXT>
<PAGE>

                                                                    Exhibit 10.2

                                 H&R BLOCK, INC.

                   2003 LONG-TERM EXECUTIVE COMPENSATION PLAN

                                 AWARD AGREEMENT

      This Award Agreement ("AGREEMENT") is entered into by and between H&R
Block, Inc., a Missouri corporation (the "COMPANY"), and ________________(the
"RECIPIENT").

      WHEREAS, in accordance with the Company's 2003 Long-Term Executive
Compensation Plan, as amended, (the "PLAN"), the Recipient has been selected by
the Compensation Committee under the Plan (the "COMMITTEE") or the Chief
Executive Officer of the Company as a key employee of one of the subsidiaries of
the Company and may be eligible from time to time to receive Awards under the
Plan;

      WHEREAS, the Recipient recognizes Awards made under the Plan are subject
to certain conditions, restrictions and risk of forfeiture;

      WHEREAS, the Committee or the Chief Executive Officer has determined that
the Recipient is eligible to receive an Award under the Plan;

      NOW, THEREFORE, in consideration of the foregoing the parties hereby agree
to the terms and conditions of the Plan and the terms, conditions and mutual
covenants as set forth in Exhibit 1 attached hereto and made a part hereof. The
parties understand and agree that said terms, conditions and mutual covenants
shall be binding as to future Awards under the Plan. However, nothing in this
Agreement shall prevent the Committee or the Chief Executive Officer of the
Company from exercising authority under the Plan to change or modify the terms
and conditions of future Awards.

      The parties acknowledge that this Agreement does not confer on the
Recipient any right to continued employment for any period of time, is not an
employment contract, and shall not in any manner modify any effective contract
of employment between the Recipient and any subsidiary of the Company.

      The parties acknowledge that this Agreement does not confer on the
Recipient any right or guarantee to future Awards under the Plan. The Committee
or the Chief Executive Officer of the Company shall retain full authority and
discretion to make determinations regarding eligibility for Awards under the
Plan, including the types, sizes, terms and conditions of Awards granted under
the Plan.

      The parties hereto have executed this Agreement effective as of the Date
of Grant.

                                        H&R BLOCK, INC.
_________________________________
(Signature of Recipient)

                                        By: /s/ Mark A. Ernst
_________________________________           ------------------------------------
(Social Security Number)                    Mark A. Ernst
                                            Chairman of the Board, President and
                                            Chief Executive Officer

<PAGE>

                                 H&R BLOCK, INC.

                   2003 LONG-TERM EXECUTIVE COMPENSATION PLAN

                           AWARD AGREEMENT - EXHIBIT 1

I.    RESTRICTED SHARES

            (A) Issuance of Shares; Delivery of Shares.

            (1) Restricted Shares (the "Shares") issued under the Plan shall be
held by the Company, or its transfer agent or other designee, and shall be
subject to forfeiture by or delivery to the Recipient as set forth in the Plan
and this Exhibit 1. Shares shall be considered to be held by the Company for
purposes of Section I(E) until such time as the Shares vest in accordance with
the terms of the vesting schedule as set forth in the Award letter.

            (2) Any Shares to be delivered to the Recipient by the Company in
accordance with the terms of the Plan shall be transferred directly into a
brokerage account established for the Recipient at a financial institution the
Committee shall select at its sole discretion (the "Financial Institution") or
delivered in certificate form free of restrictions, such method to be selected
by the Committee in its sole discretion. The Recipient agrees to complete any
documentation with the Company or the Financial Institution that is necessary to
effect the transfer of Shares to the Financial Institution before the delivery
will occur.

            (3) If the Recipient is age 65 or older and retires from employment
with any direct or indirect subsidiary of the Company after the first
anniversary of an Award under the Plan, and is not immediately thereafter and
continuously employed by any other direct or indirect subsidiary of the Company,
the Company shall deliver to the Recipient, promptly after termination of such
employment, all of the Shares then held by the Company and, for purposes of
Section I(E), as of said retirement date, such Shares shall no longer be
considered to be held by the Company. Upon completion of any such delivery, this
Agreement shall terminate and the Company and the Recipient shall, except as
provided in Section IV(L), have no further rights or obligations hereunder. For
purposes of this Agreement, "retires" shall mean the Recipient's voluntary
termination of employment.

            (B) Dividends and Voting Rights. During the time that the Company,
or its transfer agent or other designee, continues to hold any Shares subject
hereunder to forfeiture by (and delivery to) the Recipient, the Recipient shall
be entitled to receive any dividends paid with respect to such Shares and to
vote such Shares on any matters submitted by the Company to its shareholders.
Dividends paid with respect to any Shares that have not been delivered to the
Recipient pursuant to the terms of the Plan and the vesting schedule and with
respect to which an election under Section 83(b) of the Internal Revenue Code
("83(b) Election") has not been made, may not be reinvested under the H&R Block,
Inc. Dividend Reinvestment Plan, as amended.

Exhibit 1                                                          JUNE 30, 2005

                                       2

<PAGE>

            (C) Transfer Restrictions.

            (1) During the period that Shares issued under the Plan are held by
the Company hereunder for delivery to the Recipient, such Shares and the rights
and privileges conferred shall not be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to sale under execution, attachment or similar process. Upon any
attempt, contrary to the terms hereof, to transfer, assign, pledge, hypothecate,
or otherwise so dispose of such Shares or any right or privilege conferred
hereby, or upon any attempted sale under any execution, attachment, or similar
process upon such Shares or the rights and privileges hereby granted, then and
in any such event this Agreement and the rights and privileges hereby granted
shall, except as provided in Section IV(L), immediately terminate. Immediately
after such termination, such Shares shall be forfeited by the Recipient and the
Recipient hereby authorizes the Company and its stock transfer agent to cause
the delivery, transfer and conveyance of such Shares to the Company.

            (2) If at any time counsel for the Company determines that
qualification of the Shares under any state or federal securities law, or the
consent or approval of any governmental regulatory authority, is necessary or
desirable as a condition of the transfer of such Shares (including a sale,
assignment, pledge, grant of a security interest in respect of, attachment, or
disposal of the Shares in any manner, by operation of law or otherwise) or offer
to transfer such Shares, the Recipient shall not transfer or offer to transfer
such Shares, in whole or in part, and any such attempted transfer or offer to
transfer will be void and of no effect, unless and until such qualification,
consent, or approval shall have been effected or obtained free of any conditions
such counsel deems unacceptable.

            (D) Legend. While any Shares are held by the Company or its transfer
agent or other designee and subject to forfeiture by or delivery to the
Recipient, the certificate or certificates representing such Shares shall
contain the following restrictive transfer legend:

      "THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK
      REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING
      FORFEITURE) OF THE 2003 LONG-TERM EXECUTIVE COMPENSATION PLAN OF H&R
      BLOCK, INC. AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND
      H&R BLOCK, INC. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE WITH THE
      SECRETARY OF H&R BLOCK, INC."

            (E) Forfeiture and Return of Shares.

            (1) On the date the Recipient ceases for whatever reason to be an
Employee and is not immediately thereafter and continuously employed as a
regular active employee by any other direct or indirect subsidiary of the
Company ("Last Day of Employment"), all Shares held on such date of cessation by
the Company, or its transfer agent or other designee, shall be forfeited by the
Recipient and the Recipient hereby authorizes the Company and its stock transfer
agent to cause the delivery, transfer and conveyance of such Shares to the
Company. Thereafter, this Agreement shall terminate and the Company and the
Recipient shall, except as provided in Section IV(L), have no further rights or
obligations hereunder.

Exhibit 1                                                          JUNE 30, 2005

                                       3

<PAGE>

            (2) If the Recipient engages in any conduct described in Sections
III(A)(1), III(A)(2), III(A)(3), or III(A)(4), as the same may be limited
pursuant to Section III(B), on the date the Recipient engages in such conduct,
all Shares held on such date by the Company, or its transfer agent or other
designee, if any, shall be forfeited by the Recipient and the Recipient
authorizes the Company and its stock transfer agent to cause the delivery,
transfer and conveyance of such Shares to the Company. In addition, upon
Recipient's engagement in any such conduct, the Recipient shall become obligated
to pay to the Company the aggregate Amount of Income Recognized (as defined
below) by Recipient during the 12-consecutive-month period immediately prior to
the Recipient's Last Day of Employment (regardless of whether such engagement
took place prior to, on or after such Last Day of Employment). The "Amount of
Income Recognized" by the Recipient shall be equal to the number of Shares
delivered to the Recipient during such 12-month period multiplied by the fair
market value of one share of the Company's Common Stock ("Common Stock") on the
date the Shares were no longer considered to be held by the Company. The fair
market value of a share of Common Stock for purposes of this Section I(E) shall
be equal to the average of the high and low reported sales prices for such
Common Stock, regular way, as reported by the New York Stock Exchange (or any
successor exchange or stock market on which such high and low sales prices are
reported) on the date specified in this Section I(E). The Recipient shall pay
the Amount of Income Recognized as follows: (x) if, as of the Valuation Date (as
defined below), the Recipient owns Common Stock received as a result of the
delivery of the Shares by the Company to the Recipient (the "Unrestricted Common
Stock") with a fair market value as of the Valuation Date equal to or greater
than the Amount of Income Recognized, the Recipient shall transfer and assign to
the Company the number of shares of Unrestricted Common Stock with a fair market
value as of the Valuation Date equal to the Amount of Income Recognized, (y) if
the fair market value (as of the Valuation Date) of the Unrestricted Common
Stock, if any, owned by the Recipient is less than the Amount of Income
Recognized, the Recipient owns Common Stock other than Unrestricted Common Stock
(the "Other Common Stock") as of the Valuation Date, and the aggregate fair
market value of the Unrestricted Common Stock, if any, and the Other Common
Stock, if any, as of the Valuation Date is equal to or greater than the Amount
of Income Recognized, the Recipient shall transfer and assign to the Company the
number of shares of Unrestricted Common Stock and Other Common Stock with an
aggregate fair market value as of the Valuation Date equal to the Amount of
Income Recognized (such number of shares to consist first of all shares of the
Recipient's Unrestricted Common Stock, if any, and the remainder to consist of
shares of Other Common Stock), or (z) if the Recipient does not own Common Stock
as of the Valuation Date with a fair market value at least equal to the Amount
of Income Recognized, the Recipient shall either (1) acquire additional Common
Stock such that the fair market value of Common Stock owned by Recipient (valued
as of the Valuation Date) is at least equal to the Amount of Income Recognized
and transfer and assign the number of shares of Common Stock with such fair
market value to the Company (such number of shares to consist first of all
shares of the Recipient's Unrestricted Common Stock, if any, and the remainder
to consist of shares of Other Common Stock), or (2) transfer and assign such
Common Stock as is owned by the Recipient as of the Valuation Date and pay to
the Company in cash the difference between the Amount of Income Recognized and
the fair market value (as of the Valuation Date) of the Common Stock so
transferred and assigned. No fractional shares of Common Stock shall be
delivered to the Company; rather, the number of shares transferred shall be
reduced to the nearest whole number. The Recipient agrees to pay the aggregate
Amount of Income Recognized within the aforementioned 12-consecutive-month
period in either Common Stock or cash, as set forth above, within five (5) days
after the Valuation Date and the Company shall be entitled to set-off against
such aggregate Amount of Income Recognized any amount owed to Recipient by the
Company or any of its

Exhibit 1                                                          JUNE 30, 2005

                                       4

<PAGE>

subsidiaries. "Valuation Date" means three (3) business days after the date of
any written demand by the Company to Recipient for the Amount of Income
Recognized pursuant to this section. The remedy provided in this Section 2 shall
be without prejudice to the rights of the Company and/or any one or more of its
subsidiaries to recover any losses resulting from the applicable conduct of the
Recipient and shall be in addition to any other remedies the Company and/or any
one or more of its subsidiaries may have, at law or in equity, resulting from
such conduct.

            (F) Withholding Taxes.

            (1) Except with respect to those Shares for which an 83(b) Election
has been made by Recipient, on the date any federal, state, local or foreign
taxes are required to be withheld by the Company or the Recipient's employer in
connection with Shares awarded pursuant to the Plan (except dividends paid with
respect to the Shares), the Recipient shall make an irrevocable election to (a)
pay to the Company in cash the amount of any such tax withholding obligations or
(b) have the Company withhold a portion of such Shares to satisfy all or part of
any such tax withholding obligations, with the value of each such withheld Share
equal to the fair market value of Common Stock on the date the tax withholding
is required to be made. The Recipient must make and deliver such irrevocable
election to the Company in writing within five business days after the date the
tax withholding obligations arise, or such shorter time period as the Company
may require (the "Delivery Deadline"). Any such election to make a payment to
the Company in the amount of the tax withholding obligations must include
payment. If the election is not made on or before the Delivery Deadline or if
the election to make a payment to the Company in the amount of all or part of
the tax withholding obligations is timely made but does not include payment, the
Company will withhold Shares to satisfy all of any such tax withholding
obligations, with the value of each such withheld Share equal to the fair market
value of Common Stock on the date the tax withholding is required to be made. If
only whole Shares may be withheld to satisfy the tax withholding obligations,
the Company will round up to the closest whole share necessary to completely
satisfy the tax obligations. The dollar amount of any difference between the
amount required to be withheld and the amount actually withheld will be credited
as additional federal tax withholdings on the Recipient's Form W-2 for the year
in which the obligations arise. Notwithstanding the foregoing, the Company, in
its sole discretion, may require the Recipient to pay to the Company in cash the
amount of tax required to be withheld in lieu of permitting or causing the
Company to withhold Shares to satisfy the tax withholding obligation, if the
Company determines that withholding of Shares will result in the violation of
any state or federal securities law by the Recipient or by the Company or any of
its subsidiaries, or require the Recipient to disgorge any profits associated
with an acquisition or disposition of Common Stock.

            (2) With respect to those Shares for which an 83(b) Election has
been made by the Recipient, the Recipient shall pay to the Company the amount of
any federal, state, local or foreign taxes required to be withheld by the
Company or the Recipient's employer as a result of making the 83(b) Election
promptly after such election has been made.

            (3) On the date any federal, state, local or foreign taxes are
required to be withheld by the Company or the Recipient's employer in connection
with dividends paid with respect to any Shares that have not been delivered to
the Recipient pursuant to Sections I(A)(2), I(A)(3), I(A)(4) and I(A)(5) and
with respect to which an 83(b) Election has not been made, the Company shall
withhold the amount of such tax obligations from such dividend payment or
instruct the

Exhibit 1                                                          JUNE 30, 2005

                                       5

<PAGE>

Recipient's employer to withhold such amount from the Recipient's next
payment(s) of wages. The Recipient authorizes the Company to so instruct the
Recipient's employer and authorizes the Recipient's employer to make such
withholdings from payment(s) of wages if the Company does not withhold the tax
obligations from the dividend payments.

II.   STOCK OPTIONS

            (A) Grant of Stock Option. Pursuant to the terms of the Plan, the
Company may award the Recipient the right and option to purchase shares of
Common Stock identified as subject to an Incentive Stock Option, or shares of
Common Stock identified as subject to Nonqualified Stock Option (hereinafter
collectively referred to as "STOCK OPTIONS"). Any such award shall state the
Grant Date of the award ("Grant Date") and the Option Price Per Share. The right
and option to purchase shares of Common Stock identified as subject to
Nonqualified Stock Option shall not constitute and shall not be treated for any
purpose as an "incentive stock option," as such term is defined in the Plan
and/or in the Internal Revenue Code of 1986, as amended.

            (B) Term of Option. Stock Options shall expire as to all of its
unexercised shares 10 years after the Grant Date, and, except as provided in
Sections II(C)(2) and II(D), shall terminate when the Recipient ceases for
whatever reason to be an employee of any of the subsidiaries of the Company.

            (C) Exercise of Stock Options. Stock Options granted under the Plan
shall be exercisable from time to time by the Recipient by the giving of written
notice of exercise to the Company specifying the number of whole shares to be
purchased, and accompanied by full payment of the purchase price therefor,
subject, however, to Section II (D) and the following restrictions:

            (1) Stock Options may only be exercised pursuant to the terms of the
Plan and the vesting schedule as stated in the Award Letter delivered to the
Recipient on the Grant Date. The maximum number of shares of Common Stock
identified as subject to Incentive Stock Option and the maximum number of shares
of Common Stock identified as subject to Nonqualified Stock Option which may be
purchased pursuant to the Stock Options shall be as set forth in the statement
prepared by the Company that lists all awards granted to Recipient under the
Plan. The right to purchase shall be cumulative, so that the full number of
shares of Common Stock that become purchasable at any time need not be purchased
at such time, but may be purchased at any time or from time to time thereafter
(but prior to the termination of such Stock Option). Notwithstanding the above,
(a) in the event of a "Change of Control" (as hereinafter defined) after the
Grant Date, Recipient may purchase 100% of the total number of shares to which
such Stock Options then relate, provided that such Change of Control occurs at
least six months after the Grant Date, (b) Stock Options shall become fully
exercisable at any time after the Recipient reaches "Retirement Age," retires
and more than one year has elapsed since the Grant Date, (c) in the event that
Recipient becomes a Participant (as defined below) in the H&R Block Severance
Plan ("BLOCK SEVERANCE PLAN"), the RSM McGladrey Severance Plan ("RSM SEVERANCE
PLAN"), or the RSM McGladrey Severance Plan for Managing Directors ("RSM MD
SEVERANCE PLAN"), or any successor severance plans thereto (collectively, the
"SEVERANCE PLAN"), Stock Options granted under the Plan shall become exercisable
to the extent provided in Section 6(a) of the Severance Plan as of the
applicable date specified in Section 6(a) of the Severance Plan (or the
comparable section to Section 6(a) in any successor severance plan), and (iv) in
the event Recipient is a party to an employment agreement as of Recipient's last
day of employment by any subsidiary of the Company ("LAST DAY OF EMPLOYMENT")
that contains

Exhibit 1                                                          JUNE 30, 2005

                                       6

<PAGE>

a provision that, upon the occurrence of a certain event or certain events
causes all or a portion of such Stock Options to become exercisable (an
"EMPLOYMENT AGREEMENT"), such Stock Options shall become exercisable upon the
occurrence of any such event to the extent provided in such Employment
Agreement. For the purposes of this Agreement, "RETIREMENT AGE" shall mean the
attainment of age 65, the term "PARTICIPANT" shall be as defined in the
Severance Plan, as the case may be, and references to each severance plan shall
mean such severance plan as it exists at the time Recipient becomes a
Participant therein. If the application of any provision of this Section
II(C)(1) results in the acceleration of vesting of all or any portion of Stock
Options granted under the Plan, shares of Common Stock then subject to such
Stock Options shall be allocated such that the number of shares subject to
Incentive Stock Option shall be the maximum number of shares that may be subject
to Incentive Stock Option under Section 422 of the Code, as amended (or any
successor Code provision pertaining to "incentive stock option"), for the
calendar year in which the acceleration of vesting results from (i) Recipient's
participation in the Severance Plan or (ii) pursuant to Recipient's Employment
Agreement, and Recipient makes an irrevocable election to extend the expiration
period of such options pursuant to and consistent with the terms of the
severance plan in which Recipient participates or, if applicable, the Employment
Agreement, as the case may be, Section II(C)(2) of this Agreement shall apply.
In application of the immediately preceding sentence, in no event shall a share
of Common Stock subject to a Nonqualified Stock Option become a share of Common
Stock subject to an Incentive Stock Option.

            (2) Stock Options granted under the Plan may not be exercised in
whole or in part if the Recipient is not, at the time of the exercise of such
Stock Options, in the employ of any of the subsidiaries of the Company, and
further has not been continuously so employed from the date hereof to and
including the date of such exercise of such Stock Options, except that if, prior
to the Expiration Date of such Stock Options, the Recipient shall cease to be
employed by any of the subsidiaries of the Company because of death, retirement,
"disability" (as defined below), or termination of Recipient's employment by
such subsidiary without "cause" (as defined below), such Stock Options shall
continue and shall terminate: (a) twelve months after the date of death, but
only if such death occurred while the Recipient was in the employ of a
subsidiary of the Company; (b) or three months after the date Recipient's
employment ceases due to retirement; or (c) three months after the date
Recipient's employment ceases due to disability; or (d) three months after the
date of termination of Recipient's employment by a subsidiary of the Company
without "cause," provided that, in the event that Recipient becomes a
Participant in the Severance Plan or is a party to an Employment Agreement, and
Recipient makes an irrevocable election to extend the exercise period of such
Stock Options pursuant to and consistent with the terms of the applicable
severance plan or, if applicable, the Employment Agreement, as the case may be,
the shares of Common Stock identified in this Agreement as subject to an
Incentive Stock Option shall, upon such election, become subject to a
Nonqualified Stock Option in lieu of subject to an Incentive Stock Option, and
such Stock Options shall continue and Recipient shall have the right to exercise
such Stock Options during the applicable time period determined in accordance
with and to the extent specified in the applicable severance plan or Employment
Agreement, as the case may be. Stock Options may be exercised through the date
of termination of such Stock Options only to the extent that the Recipient was
entitled to exercise such Stock Options at the date of his or her retirement,
death, disability or termination of employment without cause, as the case may
be. Stock Options shall, in no event, be exercisable after the Expiration Date.
Stock Options shall be exercisable only by the Recipient or, in the event of the
death of the Recipient while in the employ of a subsidiary of the Company (or
within three months after

Exhibit 1                                                          JUNE 30, 2005

                                       7

<PAGE>

employment ceases due to retirement or disability, or within three months or any
longer applicable time period determined in accordance with the Severance Plan
or, if applicable, the Employment Agreement after termination of employment
without cause), by the person or persons to whom the Recipient's rights under
such Stock Options shall pass by the Recipient's will or by laws of descent and
distribution. For purposes hereof, the terms "DISABLED" or "DISABILITY" shall be
as defined in the employment practices or policies of the applicable subsidiary
of the Company in effect from time to time during the term hereof or, absent
such definition, then as defined in the H&R Block Retirement Savings Plan or any
successor plan thereto. Also, for purposes hereof, the term "CAUSE," in
connection with termination by a subsidiary of the Company of Recipient's
employment, shall be as defined in any effective Agreement of employment between
the Recipient and the applicable subsidiary, or in the absence thereof, then as
defined in current employment practices or policies of the applicable subsidiary
in effect from time to time during the term hereof. With respect to a Recipient
who becomes a Participant in the Severance Plan, a termination of employment
without cause for purposes of this Agreement shall include a "Qualifying
Termination," as such term is defined in the severance plan in which Recipient
participates. With respect to a Recipient who is a party to an Employment
Agreement, a termination of employment without cause for purposes of this
Agreement shall include a "Qualifying Termination," as such term is defined in
the Employment Agreement.

            (3) Stock Options granted under the Plan may not be exercised at any
time when its exercise or the delivery of shares of Common Stock or other
securities thereunder would, in the opinion of counsel for the Company, be in
violation of any state or federal securities laws or any regulation or ruling of
the Securities and Exchange Commission. If at any time counsel for the Company
shall determine that qualification or registration of the Common Stock under any
state or federal securities law, or the consent or approval of any governmental
regulatory authority, is necessary or desirable as a condition of the exercise
of the Stock Options, then it may not be exercised, in whole or in part, unless
and until such qualification, registration, consent or approval shall have been
effected or obtained free of any conditions such counsel deems unacceptable.
Further, the Recipient agrees that upon exercise of any Stock Options granted
under the Plan he or she will take the shares of Common Stock issuable upon such
exercise for investment and not with a view toward the distribution thereof,
provided that this representation shall be of no force and effect at any time
when an effective registration statement under the Securities Act of 1933, as
amended, shall be in effect with respect to the Common Stock optioned hereunder.

            (4)(a) Full payment of the aggregate option price (defined below)
for shares purchased shall be made at the time of exercising any Stock Options
in whole or in part. Full payment shall be made (i) in cash, or (ii) by delivery
of Common Stock with a fair market value equal to the aggregate option price, or
(iii) by a combination of payment of cash and delivery of Common Stock in
amounts so that the sum of the amount of cash plus the fair market value of the
Common Stock equals the aggregate option price, provided that payment shall be
made only in cash unless at least six months have elapsed between the date of
Recipient's acquisition of each share of Common Stock delivered by Recipient in
full or partial payment of the aggregate option price and the date on which such
Stock Option is exercised.

            (b) The "AGGREGATE OPTION PRICE" shall be the product of (i) the
Option Price Per Share as determined on the Grant Date and (ii) the number of
shares purchased.

            (c) The fair market value of a share of Common Stock for purposes of
Section II(C)(4)(a), above, shall be the Closing Price of Common Stock on the
last trading date

Exhibit 1                                                          JUNE 30, 2005

                                       8

<PAGE>

preceding the date on which the Stock Option is exercised. "CLOSING PRICE" shall
mean the last reported market price for one share of H&R Block, Inc. Common
Stock, regular way, on the New York Stock Exchange (or any successor exchange or
stock market on which such last reported market price is reported) on the day in
question. No fractional shares of Common Stock may be delivered upon the
exercise of any Stock Option.

            (5) Recipient shall pay to the Company any federal, state, local, or
other taxes required by law to be withheld with respect to the exercise of any
Stock Options, such payment to be made by Recipient on or before the earliest
date that the tax withholdings are required to be paid by the Company to the
applicable taxation authority or authorities.

            (6) For the purposes of this Agreement, a "CHANGE OF CONTROL" means:

            (a) The purchase or other acquisition (other than from the Company)
by any person, entity or group of persons, within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
(excluding, for this purpose, the Company or its subsidiaries or any employee
benefit plan of the Company or its subsidiaries), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either the then-outstanding shares of Common Stock or the combined
voting power of the Company's then-outstanding voting securities entitled to
vote generally in the election of directors; or

            (b) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "BOARD" and, as of the date hereof, the "INCUMBENT
BOARD") cease for any reason to constitute at least a majority of the Board,
provided that any person who becomes a director subsequent to the date hereof
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this section, considered as though such person was a member of the Incumbent
Board; or

            (c) The completion of a reorganization or consolidation approved by
the shareholders of the Company, in each case with respect to which persons who
were the shareholders of the Company immediately prior to such reorganization or
consolidation do not, immediately thereafter, own more than 50% of,
respectively, the Common Stock and the combined voting power entitled to vote
generally in the election of directors of the reorganized or consolidated
corporation's then-outstanding voting securities, or the sale of all or
substantially all of the assets of the Company as approved by the shareholders
of the Company, or approval by the shareholders of the Company of a liquidation
or dissolution of the Company.

            (D) Forfeiture and Return of Common Stock. (a) If the Recipient
engages in any conduct described in Sections III(A)(1), III(A)(2), III(A)(3), or
III(A)(4), below, as the same may be limited pursuant to Section III(B), below,
any Stock Options granted under the Plan, if not already terminated, shall
immediately terminate and the Recipient shall pay to the Company the aggregate
Amount of Gain Realized (as defined below) by the Recipient (as of the date(s)
of the applicable exercise(s) of the Stock Options) on all or any portion of
such Stock Options exercised by the Recipient during the 12-consecutive-month
period immediately prior to the termination of Recipient's employment with one
or more

Exhibit 1                                                          JUNE 30, 2005

                                       9

<PAGE>

subsidiaries of the Company or at any time thereafter (regardless of whether
such engagement took place prior to, on or after such termination of
employment). The "AMOUNT OF GAIN REALIZED" by the Recipient with respect to any
exercise of all or any portion of the Stock Options shall be equal to the number
of shares of Common Stock purchased pursuant to such exercise multiplied by the
difference between the fair market value of one share of Common Stock on the
date of exercise and the Option Price Per Share. The fair market value of a
share of Common Stock for purposes of this Section shall be equal to the average
of the high and low reported sales prices for such Common Stock, regular way, as
reported by the New York Stock Exchange (or any successor exchange or stock
market on which such high and low sales prices are reported) on the date
specified in this Section 4. Recipient shall pay the Amount of Gain Realized as
follows: (x) if, as of the Valuation Date (as defined below), the Recipient owns
Common Stock received as a result of the exercise of the Stock Options granted
under the Plan (the "OPTION COMMON STOCK") with a fair market value as of the
Valuation Date equal to or greater than the Amount of Gain Realized, Recipient
shall transfer and assign to the Company the number of shares of Option Common
Stock with a fair market value as of the Valuation Date equal to the Amount of
Gain Realized, (y) if the fair market value (as of the Valuation Date) of the
Option Common Stock, if any, owned by the Recipient is less than the Amount of
Gain Realized, Recipient owns Common Stock other than Option Common Stock (the
"OTHER COMMON STOCK") as of the Valuation Date, and the aggregate fair market
value of the Option Common Stock, if any, and the Other Common Stock, if any, as
of the Valuation Date is equal to or greater than the Amount of Gain Realized,
Recipient shall transfer and assign to the Company the number of shares of
Option Common Stock and Other Common Stock with an aggregate fair market value
as of the Valuation Date equal to the Amount of Gain Realized (such number of
shares to consist first of all shares of Recipient's Option Common Stock, if
any, and the remainder to consist of shares of Other Common Stock), or (z) if
the Recipient does not own Common Stock as of the Valuation Date with a fair
market value at least equal to the Amount of Gain Realized, Recipient shall
either (1) acquire additional Common Stock such that the fair market value of
Common Stock owned by Recipient (valued as of the Valuation Date) is at least
equal to the Amount of Gain Realized and transfer and assign the number of
shares of Common Stock with such fair market value to the Company (such number
of shares to consist first of all shares of Recipient's Option Common Stock, if
any, and the remainder to consist of shares of Other Common Stock), or (2)
transfer and assign such Common Stock as is owned by the Recipient as of the
Valuation Date and pay to the Company in cash the difference between the Amount
of Gain Realized and the fair market value (as of the Valuation Date) of the
Common Stock so transferred and assigned. No fractional shares of Common Stock
shall be delivered to the Company; rather, the number of shares transferred
shall be reduced to the nearest whole number. Recipient agrees to pay the
aggregate Amount of Gain Realized on all exercises within the aforementioned
12-consecutive-month period in either Common Stock or cash, as set forth above,
within five (5) days after the Valuation Date and the Company shall be entitled
to set-off against such aggregate Amount of Gain Realized any amount owed to the
Recipient by the Company or any of its subsidiaries. "VALUATION DATE" means
three (3) business days after the date of any written demand by the Company to
the Recipient for the Amount of Gain Realized pursuant to this section. The
remedy provided in this Section shall be without prejudice to the rights of the
Company and/or any one or more of its subsidiaries to recover any losses
resulting from the applicable conduct of the Recipient and shall be in addition
to any other remedies the Company and/or any one or more of its subsidiaries may
have, at law or in equity, resulting from such conduct.

            (E) No Shareholder Privileges or Employment Agreement. Neither the
Recipient nor any person claiming under or through him or her shall be or have
any of the

Exhibit 1                                                          JUNE 30, 2005

                                       10

<PAGE>

rights or privileges of a shareholder of the Company in respect of any of the
Common Stock issuable upon the exercise of Stock Options, unless and until
certificates evidencing such shares of Common Stock shall have been duly issued
and delivered. This Agreement does not confer on Recipient any right of
continued employment for any period of time, is not an employment Agreement, and
shall not in any manner modify any effective Agreement of employment between the
Recipient and any subsidiary of the Company.

            (F) Non-Transferability of Option. Stock Options granted under the
Plan shall not be transferable otherwise than by will or the laws of descent and
distribution (as specified above) and shall be exercisable during the lifetime
of the Recipient only by him or her. Except as otherwise herein provided, Stock
Options granted under the Plan and the rights and privileges conferred thereby
shall not be transferred, assigned, pledged, or hypothecated in any way (whether
by operation of law or otherwise) and shall not be subject to sale under
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of Stock Options granted under the
Plan, or of any right or privilege conferred hereby, contrary to the provisions
of the Plan or this Agreement, or upon any attempted sale under any execution,
attachment, or similar process upon the rights and privileges granted, then and
in any such event Stock Options and the rights and privileges granted shall
immediately become null and void.

III.  FORFEITURE OF AWARD

            (A) The conduct giving rise to the rights of the Company and
Recipient's obligations under this Agreement and as set forth in Sections I(D)
and II(E) are agreed to be the following:

            (1) During Recipient's employment, or within one year after
Recipient's Last Day of Employment, Recipient's engagement in, ownership of, or
control of any interest in (except as a passive investor in less than one
percent of the outstanding securities of publicly held companies), or acting as
an officer, director or employee of, or consultant, advisor or lender to, any
firm, corporation, partnership, limited liability company, institution,
business, government agency, or entity that engages in any line of business that
is competitive with any Line of Business of the Company (as defined below),
provided that this Section III(A)(1) shall not apply to Recipient if Recipient's
primary place of employment by a subsidiary of the Company as of the Date of
Grant is in either the State of California or the State of North Dakota. "LINE
OF BUSINESS OF THE COMPANY" means any line of business of the subsidiary of the
Company by which Recipient was employed as of the Last Day of Employment, as
well as any one or more lines of business of any other subsidiary of the Company
by which Recipient was employed during the two-year period preceding the Last
Day of Employment, provided that, if Recipient's employment was, as of the Last
Day of Employment or during the two-year period immediately prior to the Last
Day of Employment, with HRB Management, Inc. or any successor entity thereto,
"Line of Business of the Company" shall mean any lines of business of the
Company and all of its subsidiaries; or

            (2) During Recipient's employment, or within one year after the Last
Day of Employment, Recipient employs or solicits for employment by any employer
other than a subsidiary of the Company any employee of any subsidiary of the
Company, or recommends any such employee for employment to any employer (other
than a subsidiary of the Company) at which Recipient is or intends to be (a)
employed, (b) a member of the Board of Directors, (c) a partner, (d) providing
consulting services, or (e) an owner, regardless of

Exhibit 1                                                          JUNE 30, 2005

                                       11

<PAGE>

Recipient's percentage of ownership interest in such employer (except if such
employer is a publicly traded company and Recipient is a passive investor in
less than one percent of its outstanding securities); or

            (3) During Recipient's employment, or within one year after the Last
Day of Employment, Recipient directly or indirectly solicits or enters into any
arrangement with any person or entity which is, at the time of the solicitation,
a significant customer of a subsidiary of the Company for the purpose of
engaging in any business transaction of the nature performed by such subsidiary,
or contemplated to be performed by such subsidiary, for such customer, provided
that this Section III(A)(3) shall only apply to customers for whom Recipient
personally provided services while employed by a subsidiary of the Company or
customers about whom or which Recipient acquired material information while
employed by a subsidiary of the Company; or

            (4) During Recipient's employment or within one year after the Last
Day of Employment, Recipient misappropriates or improperly uses or discloses
confidential information of the Company and/or its subsidiaries.

            (B) Recipient and the Company agree that, if Recipient is a party to
an effective Agreement of employment with a subsidiary of the Company that
contains a covenant or covenants relating to Recipient's engagement in conduct
that is the same as or substantially similar to the conduct described in any of
Sections III(A)(1), III(A)(2), III(A)(3), or III(A)(4) above, and any specific
conduct regulated in such covenant or covenants in such Agreement of employment
is more limited in scope geographically or otherwise than the corresponding
specific conduct described in any of such Sections III(A)(1), III(A)(2),
III(A)(3), or III(A)(4), then the corresponding specific conduct addressed in
the applicable Sections III(A)(1), III(A)(2), III(A)(3), or III(A)(4) shall be
limited to the same extent as such conduct is limited in the Agreement of
employment and the Company's rights and remedy with respect to such conduct
under this Section III shall apply only to such conduct as so limited.

IV.   MISCELLANEOUS

            (A) No Employment Contract. This Agreement does not confer on the
Recipient any right to continued employment for any period of time, is not an
employment contract, and shall not in any manner modify any effective contract
of employment between the Recipient and any subsidiary of the Company.

            (B) Adjustment of Shares. If there shall be any change in the
capital structure of the Company, including but not limited to a change in the
number or kind of the outstanding shares of the Common Stock resulting from a
stock dividend or split-up, or combination or reclassification of such shares
(or of any stock or other securities into which shares shall have been changed,
or for which they shall have been exchanged), then the Board of Directors of the
Company shall make such equitable adjustments with respect to the Stock Option,
or any other provisions of the Plan, as it deems necessary or appropriate to
prevent dilution or enlargement of the Stock Option rights hereunder or of the
shares subject to this Stock Option.

            (C) Merger, Consolidation, Reorganization, Liquidation, etc. If the
Company shall become a party to any corporate merger, consolidation, major
acquisition of property for stock, reorganization, or liquidation, the Board of
Directors shall, acting in its absolute and sole discretion, make such
arrangements, which shall be binding upon the

Exhibit 1                                                          JUNE 30, 2005

                                       12

<PAGE>

Recipient of unexpired Stock Option rights or Shares not yet delivered, for the
substitution of a new award or other contractual rights with regard to this
award.

            (D) Interpretation and Regulations. The Board of Directors of the
Company shall have the power to provide regulations for administration of the
Plan by the Committee and to make any changes in such guidelines as from time to
time the Board may deem necessary. The Committee shall have the sole power to
determine, solely for purposes of the Plan and this Agreement, the date of and
circumstances which shall constitute a cessation or termination of employment
and whether such cessation or termination is the result of retirement, death,
disability or termination without cause or any other reason, and further to
determine, solely for purposes of the Plan and this Agreement, what constitutes
continuous employment with respect to the exercise of Stock Option or delivery
of Shares under the Plan (except that absence on leave approved by the Committee
or transfers of employment among the subsidiaries of the Company shall not be
considered an interruption of continuous employment for any purpose under the
Plan).

            (E) Reasonableness of Restrictions, Severability and Court
Modification. Recipient and the Company agree that, the restrictions contained
in this Agreement are reasonable, but, should any provision of this Agreement be
determined by a court of competent jurisdiction to be invalid, illegal or
otherwise unenforceable or unreasonable in scope, the validity, legality and
enforceability of the other provisions of this Agreement will not be affected
thereby, and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Recipient to be amended as to
scope of protection, time or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court, and, as so
amended will be enforced.

            (F) Waiver. The failure of the Company to enforce at any time any
terms, covenants or conditions of this Agreement shall not be construed to be a
waiver of such terms, covenants or conditions or of any other provision. Any
waiver or modification of the terms, covenants or conditions of this Agreement
shall only be effective if reduced to writing and signed by both Recipient and
an officer of the Company.

            (G) Notices. Any notice to be given to the Company or election to be
made under the terms of this Agreement shall be addressed to the Company
(Attention: Long-Term Incentive Department) at 4400 Main Street, Kansas City,
Missouri 64111, or at such other address as the Company may hereafter designate
in writing to the Recipient. Any notice to be given to the Recipient shall be
addressed to the Recipient at the address set forth on the cover sheet to this
Award Agreement or at such other address as the Recipient may hereafter
designate in writing to the Company. Any such notice shall be deemed to have
been duly given when deposited in the United States mails via regular or
certified mail, addressed as aforesaid, postage prepaid.

            (H) Choice of Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Missouri without
reference to principles of conflicts of laws.

            (I) Headings. The section headings herein are for convenience only
and shall not be considered in construing this Agreement.

            (J) Amendment. No amendment, supplement, or waiver to this Agreement

Exhibit 1                                                          JUNE 30, 2005

                                       13

<PAGE>

is valid or binding unless in writing and signed by both parties.

            (K) Reservation of Rights. The Company expressly reserves the right
to change, modify or amend the terms and conditions of any future awards of
grants under the Plan.

            (L) Survival. Sections I(C), I(E), I(F), III, IV(D), IV(E), IV(F),
IV(G), IV(H), and IV(J) shall survive any termination of this Agreement and
shall be applicable to any Shares delivered to the Recipient pursuant to the
terms of the Plan.

            (M) Execution of Agreement. This Agreement shall not be enforceable
by either party, and Recipient shall have no rights with respect to the Long
Term Incentive Award, unless and until (1) the Award Agreement is signed by
Recipient and on behalf of the Company by an officer of the Company, provided
that the signature by such officer of the Company on behalf of the Company may
be a facsimile or stamped signature, and (2) returned to the Company.

Exhibit 1                                                          JUNE 30, 2005

                                       14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>3
<FILENAME>c91685exv10w9.txt
<DESCRIPTION>FORM OF 1989 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS STOCK OPTION AGREEMENT
<TEXT>
<PAGE>

                                                                    Exhibit 10.9

                                 H&R BLOCK, INC.

                  1989 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS

                             STOCK OPTION AGREEMENT

            1. Grant of Option. H&R Block, Inc., a Missouri corporation (the
"Company"), hereby grants to ______________ (the "Optionee") as of
____________("Date of Grant") an option (the "Stock Option"), pursuant to the
Company's 1989 Stock Option Plan for Outside Directors, as amended, which is by
this reference incorporated herein and made a part hereof (the "Plan"), to
purchase an aggregate of _______ SHARES of common stock, without par value (the
"Common Stock"), of the Company at a purchase price of _______ per share (the
"Purchase Price"), subject to the terms and conditions herein and in the Plan.
This Option is not intended to qualify as an incentive stock option within the
meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended.

            2. Term of Option. The Stock Option shall expire as to all of its
unexercised shares on the date which is exactly ten (10) years after the Date of
Grant ("Expiration Date") and, except as provided in Section 3(a) hereof, shall
terminate when the Optionee ceases for whatever reason to be a member of the
Board of Directors of the Company or any Subsidiary of the Company (as defined
in the Plan).

            3. Exercise of Stock Option. The Stock Option granted hereunder
shall be exercisable from time to time by the Optionee by giving written notice
of exercise to the Company specifying the number of whole shares to be
purchased, and accompanied by full payment of the purchase price therefor,
subject, however, to the following restrictions:

            (a) This Stock Option may not be exercised in whole or in part if
the Optionee is not, at the time of the exercise of such Stock Option, a
director of the Company or any Subsidiary of the Company, and, further, has not
been continuously such a director from the Date of Grant to and including the
date of such exercise of such Stock Option, except that if, prior to the
Expiration Date, the Optionee shall cease to be a director of the Company or any
Subsidiary of the Company because of death, retirement or removal of the
Optionee as a director of the Company or any Subsidiary of the Company without
"cause" (as defined below), the Stock Option shall continue and shall terminate:
365 days after the date of death, but only if such death occurred while the
Optionee was a director of the Company or any Subsidiary of the Company; or
three (3) years after the Optionee's retirement as a director from the Company
or any Subsidiary of the Company; or 180 days after the date of removal of the
Optionee as a director of the Company or any Subsidiary of the Company without
cause; and within which time this Stock Option shall be fully exercisable as to
all of the shares subject to this Stock Option. This Stock Option shall in no
event be exercisable after the Expiration Date.

            In the event of the death of the Optionee, this Stock Option shall
be exercisable only by the person or persons to whom the Optionee's rights under
this Stock Option shall pass by the Optionee's will or by laws of descent and
distribution. For purposes hereof, the term "cause," in connection with removal
of the Optionee as a director and irrespective of the meaning of removal of a
director for cause under Missouri or any other state law or otherwise, shall
mean when the Optionee shall have been finally adjudged to have been knowingly
fraudulent, deliberately dishonest or engaged in willful misconduct in the
performance of any of his or her duties to the Company or any Subsidiary of the
Company.

<PAGE>

            (b) Notwithstanding anything herein to the contrary, this Stock
Option may not be exercised at any time when its exercise or the delivery of
shares of Common Stock or other securities thereunder would, in the opinion of
counsel for the Company, be in violation of any state or federal law, rule or
ordinance, including any state or federal securities laws or any regulation or
ruling of the Securities and Exchange Commission. If at any time counsel for the
Company shall determine that qualification or registration of the Common Stock
or other securities thereby covered under any state or federal law, or the
consent or approval of any governmental regulatory authority, is necessary or
desirable as a condition of or in connection with the exercise of the Stock
Option or the purchase of shares thereunder, then it may not be exercised, in
whole or in part, unless and until such qualification, registration, consent or
approval shall have been effected or obtained free of any conditions such
counsel deems unacceptable. Further, the Optionee agrees that upon exercise of
this Stock Option he or she will take the shares of Common Stock issuable upon
such exercise for investment and not with a view toward the distribution
thereof, provided that this representation shall be of no force and effect at
any time when an effective registration statement under the Securities Act of
1933, as amended, and under applicable state securities laws, shall be in effect
with respect to the Common Stock optioned hereunder.

            (c)(i) Full payment of the aggregate option price (defined below)
for shares purchased shall be made at the time of exercising the Stock Option in
whole or in part. Full payment shall be made (A) in cash, or (B) by delivery of
Common Stock of the Company with a fair market value equal to the aggregate
option price, or (C) by a combination of payment of cash and delivery of Common
Stock of the Company in amounts so that the sum of the amount of cash plus the
fair market value of the Common Stock of the Company equals the aggregate option
price, provided that payment shall be made only in cash unless at least six
months have elapsed between the date of Optionee's acquisition of each share of
Common Stock delivered by Optionee in full or partial payment of the aggregate
option price and the date on which the Stock Option is exercised.

            (ii) The "aggregate option price" shall be the product of (A) the
Purchase Price per share and (B) the number of shares purchased pursuant to
exercise, in whole or in part, of the Stock Option.

            (iii) The fair market value of a share of the Company's Common Stock
shall be the closing price per share of Common Stock of the Company on the New
York Stock Exchange on the last trading date preceding the date on which the
Stock Option is exercised. The fair market value of the Common Stock of the
Company delivered in the exercise of any Stock Option may not exceed the
aggregate option price. No fractional shares of Common Stock of the Company may
be delivered upon the exercise of any Stock Option.

            4. No Shareholder Privileges. Neither the Optionee nor any person
claiming under or through him or her shall be or have any of the rights or
privileges of a shareholder of the Company in respect of any of the Common Stock
issuable upon the exercise of this Stock Option, unless and until certificates
evidencing such shares of Common Stock shall have been duly issued and
delivered.

            5. Non-Transferability of Option. The Stock Option granted

JUNE 30, 2004 GRANT                                                    1989 PLAN

                                       2

<PAGE>

hereunder shall not be transferable or assignable by Optionee otherwise than by
will or the laws of descent and distribution (as specified above) and shall be
exercisable during the lifetime of the Optionee only by him or her. Except as
otherwise herein provided, the Stock Option hereby granted and the rights and
privileges conferred hereby shall not be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to sale under execution, attachment, or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of this
Stock Option, or of any right or privilege conferred hereby, contrary to the
provisions hereof, or upon any attempted sale under any execution, attachment,
or similar process upon the rights and privileges hereby granted, then and in
any such event this Stock Option and the rights and privileges hereby granted
shall immediately become null and void.

            6. Adjustment of Shares. If there shall be any change in the capital
structure of the Company, including but not limited to a change in the number or
kind of the outstanding shares of the Common Stock of the Company resulting from
a stock dividend or split-up, or combination or reclassification of such shares
(or of any stock or other securities into which shares shall have been changed,
or for which they shall have been exchanged), then the Board of Directors of the
Company shall make such equitable adjustments with respect to the Stock Option,
or any other provisions of the Plan, as it deems necessary or appropriate, to
prevent dilution or enlargement of the Stock Option rights hereunder or of the
shares subject to this Stock Option, including, if necessary, any adjustment in
the maximum number of shares subject to the Plan or the number of shares of
Common Stock subject to this Stock Option.

            7. Merger, Consolidation, Reorganization, Liquidation, Etc. If the
Company shall become a party to any corporate merger, consolidation, major
acquisition of property for stock, reorganization, or liquidation, the Board of
Directors of the Company shall, acting in its absolute and sole discretion, make
such arrangement, which shall be binding upon the Optionee of unexpired Stock
Option rights, for: (a) the substitution of new stock options or other
contractual rights of any nature for any unexpired Stock Option then outstanding
hereunder, or (b) for the assumption of any such unexpired Stock Option.

            8. Interpretation and Regulations. The Board of Directors of the
Company shall have the power to provide guidelines for administration of the
Plan by any Option Committee appointed by the Board and to make any changes in
such guidelines as from time to time the Board may deem necessary.

            9. Notices. Any notice to be given to the Company under the terms of
this Agreement shall be addressed to the Company (Attention: Management Stock
Option Department) at 4400 Main Street, Kansas City, Missouri 64111, or at such
other address as the Company may hereafter designate in writing to the Optionee.
Any notice to be given to the Optionee shall be addressed to the Optionee at the
address set forth beneath his or her signature hereto or at such other address
as the Optionee may hereafter designate in writing to the Company. Any such
notice shall be deemed to have been duly given when personally delivered or when
deposited in the United States mails via regular or certified mail, addressed as
aforesaid, postage prepaid.

            10. Optionee's Representations and Warranties. By execution of this
Agreement, Optionee represents and warrants to the Company that Optionee is
familiar with the Company and its plans, operations and financial condition.
Prior to

JUNE 30, 2004 GRANT                                                    1989 PLAN

                                       3

<PAGE>

the acceptance of this Stock Option, Optionee has received all information as
Optionee deems necessary and appropriate to enable an evaluation of the
financial risk inherent in accepting the Stock Option, and has received
satisfactory and complete information concerning the business and financial
condition of the Company in response to all inquiries in respect thereof.

            11. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri.

                                            COMPANY:

                                            H&R BLOCK, INC.

                                            By: __________________________

                              OPTIONEE'S ACCEPTANCE

            The undersigned hereby accepts the foregoing Stock Option and agrees
to the terms and conditions thereof.

                                            OPTIONEE:

                                            ______________________________

                                    Address:
JUNE 30, 2004 GRANT                                                    1989 PLAN

                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.33
<SEQUENCE>4
<FILENAME>c91685exv10w33.txt
<DESCRIPTION>LEASING OPERATIONS SUPPLIER AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.33

                     LEASING OPERATIONS SUPPLIER AGREEMENT
                           (PRODUCTS AND/OR SERVICES)

      This Agreement is entered into this 11th day of
September____________________, 2003, between Wal*Mart Stores, Inc. of
Bentonville, Arkansas ("Wal*Mart") and H&R Block Services, Inc. and its
subsidiaries ("Supplier"). WHEREFORE, Wal*Mart agrees to make space available in
certain Wal*Mart stores for Supplier's tax return preparation services (the
"Promotion") and Supplier agrees to pay fees and rent to Wal*Mart upon the
following terms and conditions:

1. SERVICE. Supplier agrees to market the Promotion to its independently owned
and operated franchisees as well as to its company-owned stores. Supplier has
been designated as an approved Wal*Mart Other Income Supplier and will be
allowed to offer its Promotion to store managers of stores designated by the
Wal*Mart Other Income Department, in its sole discretion, and identified in the
attached Exhibit A. The list of stores on Exhibit A shall be revised by
September 15 of each year in the year preceding the Tax Season (as defined
below). Each store in which the Promotion was actually operated, to the
satisfaction of Wal*Mart Operations, shall remain on the list of stores in
Exhibit A in subsequent years.

      Supplier, will secure approvals for each location from the store manager
and Wal*Mart Stores Operations between July 1 and September 15th of the year
preceding the Tax Season. Supplier shall use reasonable business efforts to
conduct the Promotion at each of the store locations listed on Exhibit A.
Supplier will provide Wal*Mart with a final list of all secured locations not
later than September 18th prior to the Tax Season, which shall comprise Exhibit
B hereto. In the event Wal*Mart elects to close an assigned store(s), Wal*Mart
will give the Supplier thirty (30) days prior written notice of such closing.
Wal*Mart shall use reasonable business efforts to provide a substitute location,
but shall not be held responsible for any lost income to Supplier, its
affiliates, subsidiaries, employees, franchisees, agents, or assigns. If a
closing occurs during Tax Season, then Supplier shall not be obligated to make
future rental payments with respect to the location and Wal*Mart shall return to
the Supplier the pro-rata portion of all Base Rent received for periods in which
Supplier did not occupy the location and no substitute location is taken by
Supplier. Supplier shall operate its promotion during Tax Season only. The term
"Tax Season" means the period beginning not earlier than January 2 nor later
than January 15th and ending on April 15th (or such later date as the Internal
Revenue Service permits the filing of federal income tax returns without
extension). Each year during the Term, Wal*Mart shall grant Supplier access to
the store on or after December 28th for the purpose of constructing and
equipping the Sites. Thereafter, Supplier shall have access to each Site during
all hours when the store is open to Wal*Mart associates. Supplier will remove
all of its furnishings and equipment used at a Site within 5 days after the end
of each Tax Season of each year during the Term.

2. TERM. The term of this Agreement shall commence on the date the Agreement is
signed and shall end on May 30, 2005 unless terminated earlier in accordance
with provisions of Section 19. It is also agreed and understood that Wal*Mart
shall have the right to propose a new commission schedule in advance of the 2005
Tax Season (but no later than July 1, 2004) and that Supplier shall have thirty
(30) days to accept said new commission schedule or terminate the Agreement,
provided however that no such new commission scheduled shall contain rents in
excess of 130% of the current rents. In the event that Supplier or Supplier's
franchisee does not generate at least thirty-five thousand dollars

[SEAL]

                                       1
<PAGE>

($35,000) of gross revenue at any Site during the Tax Season, then Supplier may
de-list that Site from the list of stores on Exhibit A.

3. LOCATION. Supplier will be allotted space for a 6 ft. X 15 ft kiosk (the
"Site") approximately ninety (90) square feet in the approved area in each
Wal*Mart Store and Supercenter identified on Exhibit B attached hereto. For each
store designated on Exhibit A, Wal*Mart will assign up to three potential Site
locations as set forth on Exhibit C, and which shall be subject to the Store
Manager's approval. In the event a Site(s) is not available or unacceptable to
Supplier, Wal*Mart shall be under no obligation to provide a substitute location
nor shall Wal*Mart be held responsible for any lost income to Supplier its
affiliates, subsidiaries, employees, franchisees, agents, or assigns. After the
kiosk is located in a store with the Store Manager's approval, if the Store
Manager requests that Supplier relocate its kiosk to another part of the store
during the Tax Season, then Wal*Mart shall reimburse Supplier for the direct
cost of relocating the kiosk, including the cost of moving and reestablishing
telecom, power or any other utility to the kiosk.

4. INDEMNIFICATION.

      (a)   Supplier agrees to indemnify, defend and hold harmless Wal*Mart, its
            affiliates, subsidiaries, successors and assigns and their officers,
            directors, agents and employees, from and against any and all
            losses, damages, injuries, claims, suits, demands, judgments,
            decrees, costs, expenses, and liabilities, including but not limited
            to attorneys' fees and court costs, for property damage, economic
            injury, and personal injury, including death, which may be suffered,
            incurred or asserted by any person in connection with or arising out
            of any act or omission of Supplier its affiliates, subsidiaries,
            employees, franchisees, agents, or assigns from the breach of this
            Agreement, and/or from the operation of the Promotion.

      (b)   Wal*Mart agrees to indemnify, defend and hold harmless Supplier, its
            affiliates, franchisees, subsidiaries, successors and assigns and
            the officers, directors, agents and employees of each from and
            against any and all losses, damages, injuries, claims, suits,
            demands, judgments, decrees, costs, expenses and liabilities,
            including, but not limited to, reasonable attorneys' fees and court
            costs, for property damage and personal injury, including death,
            which may be suffered, incurred or asserted by any person arising
            solely out of any act or omission of Wal*Mart, and/or the operation
            of the store in which the Site is located. It being expressly
            understood that under no circumstances will Wal*Mart be liable to
            Supplier, its affiliates, subsidiaries, employees, franchisees,
            agents, or assigns for lost profits.

5. INSURANCE. Supplier agrees to provide comprehensive general liability
insurance, including insurance against assumed or contractual liability,
insuring the activities of Supplier, its affiliates, subsidiaries, employees,
franchisees, agents, or assigns agents, in the following amounts: Product
Liability-Two Million Dollars ($2,000,000.00) per occurrence, Malpractice/Errors
and Omissions - Two Million Dollars ($2,000,000.00) per occurrence, and General
Liability (Bodily Injury and Property Damage) - Two Million Dollars
($2,000,000.00) per occurrence. Such insurance shall be primary,
non-contributory, and not excess coverage and shall name Wal*Mart Stores, Inc.,
its subsidiaries and its affiliates, as additional insureds. Supplier agrees to
keep this insurance in full force and effect during the term of this Agreement
and shall provide Wal*Mart with ten (10) days prior written notice of any
cancellation or material change. Supplier shall provide Wal*Mart with a
Certificate of Insurance evidencing such coverage at least seven (7) days prior
to the commencement of its activities on the Wal*Mart premises pursuant to this
Agreement. Supplier shall maintain Workers' Compensation or a signed waiver for
Workers' Compensation for all employees who work at the Sites. Supplier

                                        2
<PAGE>

warrants that insurance coverage in accordance with this paragraph shall be
maintained in force and effect for each store location at which the Promotion is
conducted.

6. SUPPLIER AND/OR EMPLOYEES. Supplier and its employees are not Wal*Mart
associates. They will not receive any of the benefits available to Wal*Mart
associates including but not limited to the associate discount on merchandise
purchased at any Wal*Mart store. Supplier may offer discounts to Wal*Mart
associates on such terms as Supplier, in its discretion, might determine.

7. INDEPENDENT CONTRACTOR. It is expressly understood and agreed that the
relationship created between Supplier and Wal*Mart by this Agreement is that of
independent contractor, and except as set forth in this Agreement, neither party
shall have the right to direct and control the day-to-day activities of the
other or to create or assume any obligation on behalf of the other party for any
purpose whatsoever. Nothing in this Agreement shall be deemed to constitute the
parties as partners, joint venturers, co-owners or otherwise as participants in
a joint or common undertaking, and neither party shall be determined hereby to
be the owner of the assets, customers or business of the other. Except as set
forth in this Agreement, all financial obligations associated with each party's
business are the sole responsibility of that party.

8. TAX NUMBERS AND OPERATOR'S LICENSES. Supplier agrees to secure all sales tax
numbers, operator's licenses, and any other licensing in accordance with
applicable law as may be required by local, state, and/or federal authorities.
Wal*Mart is not responsible for determining which tax numbers and licenses are
required and shall not be liable for any fees, fines, or penalties imposed on
Supplier for failure to obtain the necessary licenses and/or tax numbers.
Supplier shall not use Wal*Mart's tax numbers and licenses. Supplier agrees it
will pay all appropriate tax liabilities levied upon its operation of its
Promotion.

9. MAINTENANCE. Supplier shall be responsible for maintenance of the Sites.
Supplier agrees to keep its area clean, free of hazards and safe for customers
and associates. Supplier shall not be responsible for maintenance of any areas
outside the Sites, including, without limitation any condition pertaining to the
buildings or the areas in or about the buildings at which the Promotion is
located.

10. HOURS OF OPERATION. Supplier agrees that its Promotion will be operative and
available to the public, at minimum, during following hours: During the periods
from the first date of operating the Promotion until February 15 and from April
1 until the end of the Tax Season. Monday through Friday 9:00 a.m. to 9:00 p.m.;
Saturday 9:00 a.m. to 5:00 p.m.; and for at least five hours on Sunday; and
during the remainder of the Tax Season, Monday through Friday 9:00 a.m. to 6:00
p.m.; Saturday 9:00 a.m, to 5:00 p.m.; and for at least five hours on Sunday
(unless prohibited by local law). Any variance in working hours must have the
prior approval of the Wal*Mart store manager.

11. CONSTRUCTION. Supplier shall be responsible for any and all expenses,
related to the construction of the kiosks on the Sites, including but not
limited to demolition, electrical, carpentry, utilities, and plumbing. However,
no changes to the premises will be allowed without the prior written consent of
Wal*Mart. Supplier shall obtained all necessary permits required for
construction and comply with all applicable building codes.

12. UTILITIES. Supplier shall be allowed to use existing electrical utility
service at the store for basic operation of the Promotion at no additional
charge over the amount set forth in section 16 below. Supplier shall, however,
be responsible for its telephone equipment, installation, and charges.

                                        3
<PAGE>

13. SIGNAGE. At all locations where Supplier the Promotion is conducted there
shall exist conspicuous and clearly visible signage informing prospective
customers: 1) that a free estimate for providing tax return preparation
assistance to meet customers needs will be provided prior to the customer being
committed to use Promotion services; 2) a toll free Telephone number where
customers may address any problems and receive prompt response or resolution to
the problem identified, and 3) the hours of operation. Wal*Mart hereby grants
Supplier, its affiliates, its franchisees, and agents reasonable rights of
access necessary to install and maintain mutually agreed upon signage promoting
the Promotion within or on the assigned kiosk space at the assigned store.

14. LIABILITY AND RESPONSIBILITY FOR EQUIPMENT. Wal*Mart will not be responsible
nor be held liable for any injury or damage to any person or property resulting
from use, misuse, or failure of any equipment used by Supplier or any of its
affiliates, subsidiaries, employees, franchisees, agents, or assigns even if
such equipment is furnished, rented, or loaned to Supplier by Wal*Mart. The
acceptance of use of any such equipment by Supplier or any of its employees or
agents shall be construed to mean that Supplier accepts full responsibility for
and agrees to indemnify Wal*Mart against any and all loss, liability, and claims
for injury or damage whatsoever resulting from the use, misuse, or failure of
such equipment.

15. ADOPTION OF WAL*MART POLICY. Supplier's employees will at all times, while
on Wal*Mart's premises maintain a pleasant and courteous attitude toward
customers. While on Wal*Mart property, Supplier's employees shall be subject to
Wal*Mart Rules and Regulations. In addition, no smoking, food, or drink will be
allowed on the sales floor, and personal appearance must be neat, clean and
consistent with attire worn by the store's sales floor associates. Supplier will
instruct each employee to refer to Wal*Mart management for details on these
Rules and Regulations, Compliance with this provision will be in the sole
discretion of Wal*Mart. Any employee of Supplier not in compliance with this
provision will be immediately removed from Wal*Mart property upon notice to
Supplier. Supplier shall conduct the Promotion consistent with Wal*Mart's policy
of guaranteeing customer satisfaction.

16. RENT AND REPORT.

      (a) The base annual rent payable to Wal*Mart shall be as follows:

            (1) Supercenters:  The base annual rent shall be $6100 per Site.

            (2) Division 1 Stores: The base annual rent shall be $4500 per Site.

      (b) The annual incentive rent, if any, payable to Wal*Mart per Site shall
      be as follows:

            (1) Supercenters: The incentive rent shall be $500 if more than 450
            federal tax returns are prepared at the Site; $1100 if more than 700
            federal tax returns are prepared at the Site; $1700 if more than 950
            federal tax returns are prepared at the Site; and $2300 if more than
            1,450 federal tax returns are prepared at the Site.

            (2) Division 1 Stores: The incentive rent shall be $250 if more than
            350 federal tax returns are prepared at the Site, $600 if more than
            600 federal tax returns are prepared at the Site; and $950 if more
            than 850 federal tax returns are prepared at the site.

                                        4
<PAGE>

      (c) Base annual rent is due and payable by Supplier in three equal
      installments: on or before January 31; February 28; and March 31 of each
      year during the Term. Incentive rent, if any is due and payable by
      Supplier on or before the May 30 of each year during the Term. Reports
      showing the number of tax returns prepared for the month(s) shall be
      submitted on or before the date each incentive rent payment is due. All
      reports shall be submitted to Wal*Mart leasing operations and all payments
      made via wire transfer to the following account Wachovia National Bank,
      Charlotte, NC, ABA No. 053000219, Account Name Wal-Mart Stores, Inc.,
      Account No.: 2079900144516, OBI: Denise West (479) 273-8562. H&R Block,
      Inc. guarantees all payments due to Wal*Mart hereunder. The failure to
      make timely payment of an amount due to Wal*Mart hereunder shall
      constitute a material breach of this Agreement.

17. AUDIT. At Wal*Mart's expense, Wal*Mart may audit such books and records of
Supplier its affiliates, subsidiaries, employees, franchisees, or assigns
necessary to determine the number of federal tax returns prepared or gross
revenue generated at each Site. Notwithstanding the foregoing, Wal*Mart shall
not be entitled to review any taxpayer information, and all Customer files and
Customer information shall remain the property of Supplier. Wal*Mart shall give
Supplier at least seven days notice of any such audit, and all such audits shall
be conducted during regular business hours unless the parties otherwise agree.
Wal*Mart shall not attempt to schedule any audit to take place during the Tax
Season. The audit shall be conducted at the place where the records relating to
tax returns prepared at the Site(s) are maintained.

18. ASSIGNMENT/TRANSFER. No assignment or transfer of the rights granted
Supplier under this Agreement shall be made without the prior written consent of
Wal*Mart. Any transfer of 51% or more of the ownership of Supplier's rights in
the Promotion shall be deemed an assignment. Subject to the foregoing, this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and assigns. Notwithstanding the foregoing,
Supplier may assign and delegate to its franchisee(s) and to affiliates which
operate the Promotion in certain territories those rights and obligations of
Supplier hereunder necessary for the operation of the Promotion for specific
Sites. Such assignment and delegation shall not require any consent of Wal*Mart;
as long as each franchise assignee executes a document in form substantially
similar to that attached as Exhibit D, by which such assignee agrees to be bound
by all the terms and provisions hereof. No such assignment shall relieve
Supplier, as between Supplier and Wal*Mart, from liability for breach of this
Agreement, or for any payment due to Wal*Mart hereunder whether breach is by
Supplier or any such assignee or franchisee.

19. TERMINATION. Wal*Mart may, without liability, terminate this Agreement for
cause by providing written notice thereof to Supplier. Where notice is provided
in accordance with this Section, all equipment belonging to Supplier shall be
removed from Wal*Mart property within 15 days of receiving notice. All costs of
such removal shall be the responsibility of Supplier. In the event Supplier
fails to remove its equipment, Wal*Mart may, at its option, consider said
equipment to be abandoned and dispose of the equipment by any reasonable means
necessary to free the space and charge Supplier with all related costs. Within
60 days following the end of the Tax Season, Supplier, at its expense, will
prepare and conduct a survey of store managers of the stores at which the
Promotion was conducted to measure the store managers' satisfaction with the
conduct of the Promotion. Wal*Mart shall have the right to approve the survey
design and substance. Notwithstanding anything to the contrary contained herein,
Wal*Mart shall have the right to de-list from Exhibit A any store location for
which Supplier receives an unsatisfactory survey score, and if unsatisfactory
scores are received for 15% or more of all stores, then Wal*Mart shall have the
right to terminate this Agreement.

                                        5
<PAGE>

20. FINANCIAL SERVICES. Supplier covenants and warrants that neither it nor its
affiliates, subsidiaries, employees, franchisees, agents, or assigns shall
directly offer any financial services in any Wal*Mart store to Wal*Mart
customers or shoppers other than the tax return preparation services that are
provided as a part of the Promotion. Notwithstanding the foregoing, Wal*Mart
acknowledges that Supplier may contact any of its clients outside of any
Wal*Mart store about the client's interest in financial services and may offer
in the course of the Promotion its refund settlement products including, without
limitation, refund anticipation loans, refund anticipation checks and IRA's. Any
breach of this section shall be deemed a material breach of this Agreement
entitling Wal*Mart to terminate this Agreement as to the Site(s) where the
breach(es) occurred, In addition, in the event that Wal*Mart properly issues ten
or more such notices to Supplier pursuant to this Section 20 during a Tax Season
Wal*Mart shall be entitled to terminate this Agreement pursuant to Section 19.

21. GOVERNING LAW; JURISDICTION; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arkansas, without regard
to the internal law of Arkansas regarding conflicts of laws. The parties
mutually consent and submit to the exclusive jurisdiction of the federal and
state courts for Benton or Washington County, Arkansas, and agree that any
action, suit or proceeding concerning this Agreement or any of the related
agreements which may be entered into between Wal*Mart and Supplier shall be
brought only in the federal or state courts for Benton or Washington County,
Arkansas. The parties mutually acknowledge and agree that they will not raise,
in connection with any such suit, action or proceeding brought in any federal or
state court for Benton or Washington County, Arkansas, any defense or objection
based upon lack of personal jurisdiction, improper venue, or inconvenience of
forum. The parties acknowledge that they have read and understand this clause
and agree willingly to its terms, and Supplier acknowledges that it has received
consideration for agreeing to its terms.

22. NOTICES. Any notice of breach or termination of this Agreement by either
party shall be in writing and addressed as follows and shall be deemed given
when delivered in person or by courier or on the third business day after being
mailed, postage prepaid, by certified mail, return receipt requested. Any other
notice given in connection with this Agreement shall be in writing and addressed
as follows and shall be deemed given when first class mail is received:

      If to Wal*Mart:           Wal*Mart Stores, Inc.
                                Attention: Leasing Operations
                                1300 SE 8th Street
                                Bentonville, AR 72716-0850

      With a copy to:           Wal*Mart Stores, Inc. Legal Department
                                Attention: General Counsel - Division
                                1 702 S.W. 8th Street
                                Bentonville, AR 72712-0185

      If to Supplier:           H&R Block Tax Services, Inc.
                                Attention: Director- Field Real Estate
                                4400 Main St.
                                Kansas City, MO 64111

      With a copy to:           H&R Block Tax Services, Inc.

                                        6
<PAGE>

                                Attn: Legal Department
                                4400 Main St.
                                Kansas City, MO 64111

23. USE OF WAL*MART'S NAME. Supplier understands that listing Wal*Mart as a
customer has value and therefore agrees that except as provided below, Supplier,
its affiliates, subsidiaries, employees, franchisees, agents, or assigns will
not use Wal*Mart's trade names, trademarks, service names, service marks, or
logos without Wal*Mart's prior written consent. In addition, neither Supplier
nor its affiliates, subsidiaries, employees, franchisees, agents, or assigns,
will list Wal*Mart as a customer in any press releases, advertisements, trade
shows, posters, reference lists, or similar public announcements without
Wal*Mart's prior written permission. However, permission will not be required
for Supplier to communicate to its potential customers that Supplier is engaged
in the Promotion at participating locations. Supplier may also verbally
reference Wal*Mart as a customer in private conversations with or private
letters to prospective Supplier customers. Wal*Mart agrees that it will not use
the Supplier's name without Supplier's permission, other than to advertise the
fact that Supplier is engaged in the Promotion at participating Wal*Mart stores.
Wal*Mart shall not permit advertising at any store where a Site is located by
any person or entity, other than Supplier, relating to the operation of a tax
preparation or related business at any other Wal*Mart store.

24. EXCLUSIVITY. Wal*Mart has or may have relationships with other Wal*Mart
Other Income Suppliers, or other persons or entities, who or which are engaged
in providing services and products similar to or competitive with the Promotion
at certain Wal*Mart Stores; and Supplier has or may have relationships with
other retailers to provide tax return preparation services at or from locations
operated by such other retailers. Supplier and Wal*Mart agree that neither
Wal*Mart's relationship with such other tax return preparation businesses, nor
Supplier's relationship with such other retailers, gives rights of any kind to
the other party to this Agreement. Notwithstanding the foregoing provisions of
this Section, Wal*Mart agrees that it will not allow any person or entity other
than Supplier to offer tax return preparation services (at any store from time
to time designated on Exhibit A) provided, however, Wal*Mart shall not be
prohibited from entering into relationships with other tax return preparation
providers as to any stores listed on Exhibit A that Supplier has elected not to
operate the Promotion at, or that Supplier has de-listed pursuant to paragraph 2
above, by September 18 of the year preceding the Tax Season

25. ENTIRE AGREEMENT. This Agreement, together with any exhibits, schedules or
other writing attached hereto or incorporated by reference herein, constitute
the entire agreement between the parties with respect to the subject matter of
this Agreement, and all prior and contemporaneous negotiations, agreements and
understandings are hereby superseded, merged and integrated into this Agreement.

26. NO CLAIM FOR LOST PROFITS. Supplier its affiliates, subsidiaries, employees,
franchisees, agents, or assigns expressly waive any claim against Wal*Mart for
lost profits and incidental and consequential damages in connection with this
Agreement. Supplier its affiliates, subsidiaries, employees, franchisees,
agents, or assigns agree that any damages as against Wal*Mart shall be limited
to the amount paid to Wal*Mart hereunder, except that claims for indemnification
under paragraph 4(b) shall not be subject to this limitation.

                                        7
<PAGE>

Wal*Mart Stores, Inc.                          H&R Block Services, Inc.

By: /s/ Glenn Habern                           By: /s/ David Byers
   --------------------                           -----------------------
             Glenn Habern                                   David Byers
    Title: Senior Vice President,                  Title: Senior Vice President
           New Business Development

Date: 9-11-2003                                Date: 9.9.03
[SEAL]
WITNESS: [ILLEGIBLE]                           WITNESS: /s/ Thomas Moorehead
         -----------                                    --------------------
                                                        Thomas Moorehead

                                        8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.40
<SEQUENCE>5
<FILENAME>c91685exv10w40.txt
<DESCRIPTION>SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.40

            SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT

                                      among

                          OPTION ONE OWNER TRUST 2001-2
                                   as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION
                                  as Depositor

                                       and

                         OPTION ONE MORTGAGE CORPORATION
                        as Loan Originator and Servicer

                                       and

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              as Indenture Trustee

                            Dated as of March 8, 2005

                          OPTION ONE OWNER TRUST 2001-2
                              MORTGAGE-BACKED NOTES

<PAGE>

                               TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS

<TABLE>
<S>                                                                                      <C>
Section 1.01   Definitions ..........................................................     1
Section 1.02   Other Definitional Provisions ........................................    31

                                   ARTICLE II

                        CONVEYANCE OF THE TRUST ESTATE;
                       ADDITIONAL NOTE PRINCIPAL BALANCES

Section 2.01   Conveyance of the Trust Estate; Additional Note Principal
               Balances .............................................................    32
Section 2.02   Ownership and Possession of Loan Files ...............................    34
Section 2.03   Books and Records Intention of the Parties ...........................    34
Section 2.04   Delivery of Loan Documents ...........................................    35
Section 2.05   Acceptance by the Indenture Trustee of the Loans; Certain
               Substitutions and Repurchases; Certification by the Custodian ........    36
Section 2.06   Conditions Precedent to Transfer Dates and Funding Dates .............    37
Section 2.07   Termination of Revolving Period ......................................    40
Section 2.08   Correction of Errors .................................................    40

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

Section 3.01   Representations and Warranties of the Depositor ......................    41
Section 3.02   Representations and Warranties of the Loan Originator ................    43
Section 3.03   Representations, Warranties and Covenants of the Servicer ............    45
Section 3.04   Reserved .............................................................    47
Section 3.05   Representations and Warranties Regarding Loans .......................    47
Section 3.06   Purchase and Substitution ............................................    48
Section 3.07   Dispositions .........................................................    50
Section 3.08   Servicer Put; Servicer Call ..........................................    53
Section 3.09   Modification of Underwriting Guidelines ..............................    53
</TABLE>

                                       -i-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                      <C>
                                   ARTICLE IV

                    ADMINISTRATION AND SERVICING OF THE LOANS

Section 4.01   Servicer's Servicing Obligations .....................................    53

                                    ARTICLE V

             ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

Section 5.01   Collection Account and Distribution Account ..........................    54
Section 5.02   Payments to Securityholders ..........................................    58
Section 5.03   Trust Accounts; Trust Account Property ...............................    59
Section 5.04   Advance Account ......................................................    61
Section 5.05   Transfer Obligation Account ..........................................    61
Section 5.06   Transfer Obligation ..................................................    63

                                   ARTICLE VI

              STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

Section 6.01   Statements ...........................................................    64
Section 6.02   Specification of Certain Tax Matters .................................    67
Section 6.03   Valuation of Loans, Hedge Value and Retained Securities
               Value, Market Value Agent ............................................    67

                                   ARTICLE VII

                                     HEDGING

Section 7.01   Hedging Instruments ..................................................    68

                                  ARTICLE VIII

                                  THE SERVICER

Section 8.01   Indemnification, Third Party Claims ..................................    69
Section 8.02   Merger or Consolidation of the Servicer ..............................    71
Section 8.03   Limitation on Liability of the Servicer and Others ...................    71
</TABLE>

                                      -ii-
<PAGE>

                             TABLE OF CONTENTS

<TABLE>
<S>                                                                                      <C>
Section 8.04   Servicer Not to Resign, Assignment ...................................    71
Section 8.05   Relationship of Servicer to Issuer and the Indenture Trustee .........    72
Section 8.06   Servicer May Own Securities ..........................................    72
Section 8.07   Indemnification of the Indenture Trustee and Initial Noteholder ......    72

                                   ARTICLE IX

                           SERVICER EVENTS OF DEFAULT

Section 9.01   Servicer Events of Default ...........................................    73
Section 9.02   Appointment of Successor .............................................    75
Section 9.03   Waiver of Defaults ...................................................    76
Section 9.04   Accounting Upon Termination of Servicer ..............................    76

                                    ARTICLE X

                            TERMINATION; PUT OPTION

Section 10.01  Termination ..........................................................    77
Section 10.02  Optional Termination .................................................    77
Section 10.03  Notice of Termination ................................................    78
Section 10.04  Put Option ...........................................................    78

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

Section 11.01  Acts of Securityholders ..............................................    78
Section 11.02  Amendment ............................................................    78
Section 11.03  Recordation of Agreement .............................................    79
Section 11.04  Duration of Agreement ................................................    79
Section 11.05  Governing Law ........................................................    79
Section 11.06  Notices ..............................................................    80
Section 11.07  Severability of Provisions ...........................................    80
Section 11.08  No Partnership .......................................................    80
Section 11.09  Counterparts .........................................................    80
Section 11.10  Successors and Assigns ...............................................    81
</TABLE>

                                      -iii-
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                      <C>
Section 11.11  Headings .............................................................    81
Section 11.12  Actions of Securityholders ...........................................    81
Section 11.13  Non-Petition Agreement ...............................................    81
Section 11.14  Holders of the Securities ............................................    82
Section 11.15  Due Diligence Fees, Due Diligence ....................................    82
Section 11.16  No Reliance ..........................................................    83
Section 11.17  Confidential Information .............................................    83
Section 11.18  Conflicts ............................................................    84
Section 11.19  Limitation on Liability ..............................................    84
Section 11.20  No Agency ............................................................    85
</TABLE>

EXHIBITS

EXHIBIT A   Form of Notice of Additional Note Principal Balance
EXHIBIT B   Form of Servicer's Remittance Report to Trustee
EXHIBIT C   Form of S&SA Assignment
EXHIBIT D   Piggy-Backed Loan Underwriting Criteria
EXHIBIT E   Representations and Warranties Regarding the Loans
EXHIBIT F   Servicing Addendum
EXHIBIT G   Form of Quarterly Compliance Certificate
EXHIBIT H   Capital Adequacy Test

                                      -iv-
<PAGE>

      SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT

            This Second Amended and Restated Sale and Servicing Agreement is
entered into effective as of March 8, 2005, among OPTION ONE OWNER TRUST 2001-2,
a Delaware business trust (the "Issuer" or the "Trust"), OPTION ONE LOAN
WAREHOUSE CORPORATION, a Delaware corporation, as Depositor (in such capacity,
the "Depositor"), OPTION ONE MORTGAGE CORPORATION, a California corporation
("Option One"), as Loan Originator (in such capacity, the "Loan Originator") and
as Servicer (in such capacity, the "Servicer"), and WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee on
behalf of the Noteholders (in such capacity, the "Indenture Trustee").

                                   WITNESETH:

            In consideration of the mutual agreements herein contained, the
Issuer, the Depositor, the Loan Originator, the Servicer and the Indenture
Trustee hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Securities:

                                    ARTICLE I

                                   DEFINITIONS

            Section 1.01 Definitions.

            Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

            Accepted Servicing Practices: The Servicer's normal servicing
practices in servicing and administering similar mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Loans in the jurisdictions in which the
related Mortgaged Properties are located and will give due consideration to the
Noteholders' reliance on the Servicer.

            Accrual Period: With respect to the Notes, the period commencing on
and including the preceding Payment Date (or, in the case of the first Payment
Date, the period commencing on and including the first Transfer Date (which
first Transfer Date is the first date on which the Note Principal Balance is
greater than zero)) and ending on the day preceding the related Payment Date.

            Act or Securities Act: The Securities Act of 1933, as amended.

            Additional Advance Rate: With respect to each day, a per annum
interest rate equal to (i) 0.75% minus the LIBOR Margin for such day (but in no
event less than zero) or (ii) following the occurrence of an Advance Note Event
of Default, 3% minus the LIBOR Margin for such day (but in no event less than
zero).

                                      -1-
<PAGE>

            Additional Note Balance: As defined in the Advance Indenture.

            Additional Note Principal Balance: With respect to each (i) Transfer
Date, the aggregate Sales Prices of all Loans conveyed on such date and (ii)
Funding Date, the amount of Additional Note Balance purchased by the Issuer from
the Advance Trust on such date.

            Adjustment Date: With respect to each ARM, the date set forth in the
related Promissory Note on which the Loan Interest Rate on such ARM is adjusted
in accordance with the terms of the related Promissory Note.

            Administration Agreement: The Administration Agreement, dated as of
April 1, 2001, among the Issuer and the Administrator.

            Administrator: Option One Mortgage Corporation, in its capacity as
Administrator under the Administration Agreement.

            Advance Account: The account established and maintained pursuant to
Section 5:04. Advance Depositor: Option One Advance Corporation.

            Advance Documents: The "Transaction Documents" as defined in the
Advance Indenture.

            Advance Indenture: The Indenture, dated as of November 1, 2003,
between Option One Advance Trust 2003-ADV 1, as issuer and Wells Fargo Bank
Minnesota, National Association, not in its individual capacity, but solely as
indenture trustee.

            Advance Note: Any of the Advance Trust's Advance Receivables Backed
Notes, Series 2003-ADV 1, executed, authenticated and delivered under the
Advance Indenture.

            Advance Note Event of Default: An "Event of Default" as defined in
the Advance Indenture.

            Advance Note Purchase Agreement: The Note Purchase Agreement, dated
as of November 1, 2003, among the Advance Trust, Option One Owner Trust 2001-1
A, Option One Owner Trust 2001-1B, Option One Owner Trust 2001-2 and Greenwich
Capital Financial Products, Inc. as agent.

            Advance Trust: Option One Advance Trust 2003-ADV 1.

            Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

            Agreement: This Agreement, as the same may be amended and
supplemented from time to time.

                                      -2-
<PAGE>

            ALTA: The American Land Title Association and its successors in
interest. Appraised Value: With respect to any Loan, and the related Mortgaged
Property, the lesser of:

            (i) the lesser of (a) the value thereof as determined by an
appraisal made for the originator of the Loan at the time of origination of the
Loan by an appraiser who met the minimum requirements of Fannie Mae or Freddie
Mac, and (b) the value thereof as determined by a review appraisal conducted by
the Loan Originator in the event any such review appraisal determines an
appraised value more than 10% lower than the value thereof, in the case of a
Loan with a Loan-to-Value Ratio less than or equal to 80%, or more than 5% lower
than the value thereof, in the case of a Loan with a Loan-to-Value Ratio greater
than 80%, as determined by the appraisal referred to in clause (i)(a) above; and

            (ii) the purchase price paid for the related Mortgaged Property by
the Borrower with the proceeds of the Loan; provided, however, that in the case
of a refinanced Loan (which is a Loan the proceeds of which were not used to
purchase the related Mortgaged Property) or a Loan originated in connection with
a "lease option purchase" if the "lease option purchase price" was set 12 months
or more prior to origination, such value of the Mortgaged Property is based
solely upon clause (i) above.

            ARM: Any Loan, the Loan Interest Rate with respect to which is
subject to adjustment during the life of such Loan.

            Assignment: An LPA Assignment or S&SA Assignment.

            Assignment of Mortgage: With respect to any Loan, an assignment of
the related Mortgage in blank or to Wells Fargo Bank Minnesota, National
Association, as custodian or trustee under the applicable custodial agreement or
trust agreement, and notice of transfer or equivalent instrument in recordable
form, sufficient under the laws of the jurisdiction wherein the related
Mortgaged Property is located to reflect the assignment and pledge of such
Mortgage.

            Balloon Loan: Any Loan for which the related monthly payments, other
than the monthly payment due on the maturity date stated in the Promissory Note,
are computed on the basis of a period to full amortization ending on a date that
is later than such maturity date.

            Basic Documents: This Agreement, the Administration Agreement, the
Custodial Agreement, the Indenture, the Loan Purchase and Contribution
Agreement, the Master Disposition Confirmation Agreement, the Note Purchase
Agreement, the Advance Note Purchase Agreement, the Trust Agreement, the
Subordination Agreement, the Cross Default Agreement, each Hedging Instrument,
if any, and, as and when required to be executed and delivered, the Assignments.

            Bill of Sale: With respect to any Funding Date, a bill of sale,
substantially in the form attached as Exhibit C to the Receivables Purchase
Agreement, delivered by Option One and the Depositor to the Issuer, the Agent
and the Indenture Trustee pursuant to the Receivables Purchase Agreement.

            Borrower: The obligor or obligors on a Promissory Note.

                                      -3-
<PAGE>

            Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in New York City, California, Maryland,
Minnesota, Pennsylvania, Delaware or in the city in which the corporate trust
office of the Indenture Trustee is located or the city in which the Servicer's
servicing operations are located are authorized or obligated by law or executive
order to be closed.

            Certificateholder. A holder of a Trust Certificate.

            Clean-up Call Date: The first Payment Date occurring after the end
of the Revolving Period and the date on which the Note Principal Balance
declines to 10% or less of the aggregate Note Principal Balance as of the end of
the Revolving Period.

            Closing Date: April 18, 2001.

            Code: The Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated by the United States Treasury thereunder.

            Collateral Percentage: With respect to each Loan and any Business
Day, a percentage determined as follows:

            (a) with respect to all Loans other than Scratch & Dent Loans, 98%;
and

            (b) with respect to all Scratch & Dent Loans, 90%.

            Collateral Value: (I) With respect to the Advance Note and each
Business Day, 100% of the Note Principal Balance of the Advance Note on such day
and (II) with respect to each Loan and each Business Day, an amount equal to the
positive difference, if any, between (a) the lesser of (1) the Collateral
Percentage of the Market Value of such Loan, and (2) 100% of the Principal
Balance of such Loan (other than a Scratch & Dent Loan which shall be 75% of the
Principal Balance thereof) each as of such Business Day, less (b) the aggregate
unreimbursed Servicing Advances attributable to such Loan as of the most recent
Determination Date; provided, however, that the Collateral Value shall be zero
with respect to the Advance Note following the occurrence of an Advance Note
Event of Default and with respect to each Loan (1) that the Loan Originator is
required to repurchase pursuant to Section 2.05 or Section 3.06 hereof or (2)
which is a Loan of the type specified in subparagraphs (i)-(ix) hereof and which
is in excess of the limits permitted under subparagraphs(i)-(ix) hereof, or (3)
which remains pledged to the Indenture Trustee later than 180 days after its
related Transfer Date, or (4) which has been released from the possession of the
Custodian to the Servicer or any Loan Originator for a period in excess of 21
days or exceed the 50 Loan limit for released Loans set forth in the Custodial
Agreement, or (5) that is a Loan which is 60 or more days Delinquent or a
Foreclosed Loan, or (6) that is a Mixed Use Loan, or (7) that is a Wet Funded
Loan and the related Loan Documents have not been delivered to the Custodian
within fifteen (15) calendar days after the date of conveyance of such Loan to
the Issuer hereunder, or (8) that is a Scratch and Dent Loan that has not been
liquidated within 90 days after the determination of such deficiency, or (9)
that has an original Principal Balance greater than $1,000,000 or (10) that is a
Scratch and Dent Loan for which a description of the related deficiency has not
been reported to the Initial Noteholder within one Business Day of the related
Transfer Date; provided, further, that (A)

                                      -4-
<PAGE>

            (i) the aggregate Collateral Value of Loans which are Second Lien
Loans may not exceed 15% of the Maximum Note Principal Balance; provided, that
the aggregate Collateral Value of Second Lien Loans exclusive of any Second Lien
Loans that are Piggy-Backed Loans may not exceed 7.5% of the Maximum Note
Principal Balance;

            (ii) the aggregate Collateral Value of Loans that are High LTV Loans
with an LTV or CLTV, as applicable, of 95.01% or greater may not exceed 3% of
the Maximum Note Principal Balance;

            (iii) the aggregate Collateral Value of Loans which are 30 to 59
days Delinquent as of the related Determination Date may not exceed 5% of the
Maximum Note Principal Balance;

            (iv) the aggregate Collateral Value of Loans with an original
Principal Balance greater than $350,000 but less than $500,000 may not exceed
20% of the Maximum Note Principal Balance;

            (v) the aggregate Collateral Value of Loans with an original
Principal Balance greater than $500,000 may not exceed 5% of the Maximum Note
Principal Balance;

            (vi) the aggregate Collateral Value of Loans which are classified as
"CC" quality Loans may not exceed 5% of the Maximum Note Principal Balance;

            (vii) the aggregate Collateral Value of Loans which are classified
as "C" or "CC" quality Loans may not exceed 12% of the Maximum Note Principal
Balance;

            (viii) the aggregate Collateral Value of Loans which are Scratch and
Dent Loans may not in the aggregate exceed 5% of the Maximum Note Principal
Balance;

            (ix) the aggregate Collateral Value of Loans that are Wet Funded
Loans may not exceed 40% of the Maximum Note Principal Balance;

            (x) the aggregate Collateral Value of Loans that conform to Fannie
Mae, Freddie Mac or Ginnie Mae underwriting guidelines may not exceed 20% of the
Maximum Note Principal Balance, and the interest rates of such Loans shall be
sufficiently hedged to the satisfaction of the Initial Noteholder; and

            (xi) the aggregate Collateral Value of Advance Receivables shall in
no event exceed $112 million.

            (B) each Loan shall be counted in each applicable category in (A)
above and may be counted in 2 or more categories in (A) above at the same time;
provided that once the Collateral Value of any Loan equals zero, it shall not be
counted in any category listed in (A) above.

            Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.

                                      -5-
<PAGE>

            Combined LTV or CLTV: With respect to any Second Lien Loan, the
ratio of the outstanding principal balance on the related date of origination of
(a)(i) such Loan plus (ii) the loan constituting the first lien to the lesser
of (b)(x) the Appraised Value of the Mortgaged Property at origination or (y)
if the Mortgaged Property was purchased within 12 months of the origination of
the Loan, the purchase price of the Mortgaged Property, expressed as a
percentage.

            Commission: The Securities and Exchange Commission.

            Convertible Loan: A Loan that by its terms and subject to certain
conditions contained in the related Mortgage or Promissory Note allows the
Borrower to convert the adjustable -+/-. Loan Interest Rate on such Loan to a
fixed Loan Interest Rate.

            Cross Default Agreement: The letter agreement dated as of April 1,
2001, between Bank of America, N.A. and Option One Mortgage Corporation.

            Custodial Agreement: The custodial agreement dated as of April 1,
2001, among the Issuer, the Servicer, the Indenture Trustee and the Custodian,
providing for the retention of the Custodial Loan Files by the Custodian on
behalf of the Indenture Trustee.

            Custodial Loan File: As defined in the Custodial Agreement.

            Custodian: The custodian named in the Custodial Agreement, which
custodian shall not be affiliated with the Servicer, the Loan Originator, the
Depositor or any Subservicer. Wells Fargo Bank Minnesota, National Association,
a national banking association, shall be the initial Custodian pursuant to the
terms of the Custodial Agreement.

            Custodian Fee: For any Payment Date, the fee payable to the
Custodian on such Payment Date as set forth in the Custodian Fee Notice for such
Payment Date, which fee shall be calculated in accordance with the separate fee
letter between the Custodian and the Servicer.

            Custodian Fee Notice: For any Payment Date, the written notice
provided by the Custodian to the Servicer and the Indenture Trustee pursuant to
Section 6.01, which notice shall specify the amount of the Custodian Fee payable
on such Payment Date.

            Daily Interest Accrual Amount: With respect to each day and the
related Accrual Period, the sum of (i) interest accrued at the Note Interest
Rate with respect to such Accrual Period on the Note Principal Balance as of the
preceding Business Day after giving effect to all changes to the Note Principal
Balance on or prior to such preceding Business Day, (ii) interest accrued at the
Additional Advance Rate on the portion of the Note Principal Balance equal to
the outstanding principal balance of the Advance Note as of the preceding
Business Day after giving effect to all changes to the outstanding principal
balance of the Advance Note on or prior to such Business Day and (iii) interest
accrued at 0.10% with respect to such Accrual Period on the aggregate Principal
Balance of all Wet Funded Loans as of the preceding Business Day after giving
effect to all changes to the aggregate Collateral Value of all Wet Funded Loans
on or prior to such preceding Business Day; provided however, for purposes of
calculating the Daily Interest Accrual Amount, Wet Funded Loans shall not
include Loans for which a Trust Receipt (as defined in the Custodial Agreement)
has been delivered to the Initial Noteholder as of the Wet Funded Custodial File
Delivery Date. For purposes of the Daily Interest Accrual Amount, a

                                      -6-
<PAGE>

Wet Funded Loan shall cease to be a Wet Funded Loan on the Business Day that a
Trust Receipt is received by the Note Purchaser with respect to such Loan,
provided, that any Wet Funded Loan for which a Trust Receipt is received after
4:30 p.m. New York City time shall continue to be a Wet Funded Loan until the
following Business Day.

            Deemed Cured: With respect to the occurrence of a Performance
Trigger or Rapid Amortization Trigger, when the condition that originally gave
rise to the occurrence of such trigger has not continued for 20 consecutive
days, or if the occurrence of such Performance Trigger or Rapid Amortization
Trigger has been waived in writing by the Majority Noteholder.

            Default: Any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.

            Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan with respect to which any of
the following has occurred as of the end of the related Remittance Period: (a)
foreclosure or similar proceedings have been commenced; or (b) the Servicer or
any Subservicer has determined in good faith and in accordance with the
servicing standard set forth in Section 4.01 of the Servicing Addendum that such
Loan is in default or imminent default.

            Deleted Loan: A Loan replaced or to be replaced by one or more
Qualified Substitute Loans.

            Delinquency Ratio: The percentage equivalent of a fraction: (i) the
numerator of which is equal to the aggregate outstanding Principal Balance of
all Loans that are Delinquent 60 days or more, including Foreclosure Property,
and (ii) the denominator of which is equal to the average aggregate outstanding
Principal Balance of all Loans for the three immediately preceding calendar
months as of the date of determination.

            Delinquent: A Loan is "Delinquent" if any Monthly Payment due
thereon is not made by the close of business on the day such Monthly Payment is
required to be paid. A Loan is "30 days Delinquent" if any Monthly Payment due
thereon has not been received by the close of business on the corresponding day
of the month immediately succeeding the month in which such Monthly Payment was
required to be paid or, if there is no such corresponding day (e.g., as when a
30-day month follows a 31-day month in which a payment was required to be paid
on the 31st day of such month), then on the last day of such immediately
succeeding month. The determination of whether a Loan is "60 days Delinquent,"
"90 days Delinquent", etc., shall be made in like manner.

            Delivery: When used with respect to Trust Account Property means:

            (a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
susceptible of physical delivery (except with respect to Trust Account Property
consisting of certificated securities (as defined in Section 8-102(a)(4) of the
UCC)), physical delivery to the Indenture Trustee or its custodian (or the
related Securities Intermediary) endorsed to the Indenture Trustee or its
custodian (or the related Securities

                                      -7-
<PAGE>

Intermediary) or endorsed in blank (and if delivered and endorsed to the
Securities Intermediary, by continuous credit thereof by book-entry to the
related Trust Account);

            (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the Indenture
Trustee or endorsed in blank to its custodian or the related Securities
Intermediary and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to
the related Trust Account, or (ii) by delivery thereof to a "clearing
corporation" (as defined in Section 8-102(5) of the UCC) and the making by such
clearing corporation of appropriate entries in its records crediting the
securities account of the related Securities Intermediary by the amount of such
certificated security and the making by such Securities Intermediary of
appropriate entries in its records identifying such certificated securities as
credited to the related Trust Account (all of the Trust Account Property
described in Subsections (a) and (b), "Physical Property");

            and, in any event, any such Physical Property in registered form
shall be in the name of the Indenture Trustee or its nominee or custodian (or
the related Securities Intermediary); and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof;

            (c) with respect to any security issued by the U.S. Treasury, Fannie
Mae or Freddie Mac that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable federal
regulations and Articles 8 and 9 of the UCC: the making by a Federal Reserve
Bank of an appropriate entry crediting such Trust Account Property to an account
of the related Securities Intermediary or the securities intermediary that is
(x) also a "participant" pursuant to applicable federal regulations and (y) is
acting as securities intermediary on behalf of the Securities Intermediary with
respect to such Trust Account Property; the making by such Securities
Intermediary or securities intermediary of appropriate entries in its records
crediting such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations and Articles 8 and 9 of the UCC to
the related Trust Account; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of any
such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and

            (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and that
is not governed by clause (c) above, registration in the records of the issuer
thereof in the name of the related Securities Intermediary, and the making by
such Securities Intermediary of appropriate entries in its records crediting
such uncertificated security to the related Trust Account.

            Designated Depository Institution: With respect to an Eligible
Account, an institution whose deposits are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the FDIC, the long-term deposits of
which shall be rated A or better by S&P

                                      -8-
<PAGE>

or A2 or better by Moody's and the short-term deposits of which shall be rated
P-1 or better by Moody's and A- I or better by S&P, unless otherwise approved in
writing by the Initial Noteholder and which is any of the following: (A) a
federal savings and loan association duly organized, validly existing and in
good standing under the federal banking laws, (B) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state, (C) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, (D) a principal subsidiary of a
bank holding company or (E) approved in writing by the Initial Noteholder and,
in each case acting or designated by the Servicer as the depository institution
for the Eligible Account; provided, however, that any such institution or
association shall have combined capital, surplus and undivided profits of at
least $50,000,000.

            Depositor: Option One Loan Warehouse Corporation, a Delaware
corporation, and any successors thereto.

            Determination Date: With respect to any Payment Date occurring on
the 10th day of a month, the last calendar day of the month immediately
preceding the month of such Payment Date, and with respect to any other Payment
Date, as mutually agreed by the Servicer and the Noteholders.

            Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans.

            Disposition Agent: Bank of America, N.A. and its successors and
assigns acting at the direction, and as agent, of the Majority Noteholders.

            Disposition Participant: As applicable, with respect to a
Disposition, any "depositor" with respect to such Disposition, the Disposition
Agent, the Majority Noteholders, the Issuer, the Servicer, the related trustee
and the related custodian, any nationally recognized credit rating agency, the
related underwriters, the related placement agent, the related credit enhancer,
the related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.

            Disposition Proceeds: With respect to a Disposition, (x) the
proceeds of the Disposition remitted to the Trust in respect of the Loans
transferred on the date of and with respect to such Disposition, including
without limitation, any cash and Retained Securities created in any related
Securitization less all costs, fees and expenses incurred in connection with
such Disposition, including, without limitation, all amounts deposited into any
reserve accounts upon the closing thereof plus or minus (y) the net positive or
net negative value of all Hedging Instruments terminated in connection with such
Disposition minus (z) all other amounts agreed upon in writing by the Initial
Noteholder, the Trust and the Servicer.

            Distribution Account: The account established and maintained
pursuant to Section 5.01(a)(2) hereof.

            Due Date: The day of the month on which the Monthly Payment is due
from the Borrower with respect to a Loan.

                                      -9-
<PAGE>

            Due Diligence Fees: Shall have the meaning provided in Section 11.15
hereof.

            Eligible Account: At any time, an account which is: (1) maintained
with a Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a
trust account (which shall be a "segregated trust account") maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or trust company shall have capital and surplus of not
less than $50,000,000; or (iv) with the prior written consent of the Majority
Noteholders, any other account.

            Eligible Servicer: (x) Option One or (y) any other Person to which
the Majority Noteholders may consent in writing.

            Escrow Payments: With respect to any Loan, the amounts constituting
ground rents, taxes, assessments, water rates, sewer rents, municipal charges,
fire, hazard, liability and other insurance premiums, condominium charges, and
any other payments required to be escrowed by the related Borrower with the
lender or servicer pursuant to the Mortgage or any other document.

            Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.

            Exceptions Report: The meaning set forth in the Custodial Agreement.

            Exchange Act: The Securities Exchange Act of 1934, as amended.

            Fannie Mae: The Federal National Mortgage Association and any
successor thereto.

            FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.

            Fidelity Bond: As described in Section 4.10 of the Servicing
Addendum.

            Final Put Date: The Put Date following the end of the Revolving
Period on which the Majority Noteholders exercise the Put Option with respect to
the entire outstanding Note Principal Balance.

            Final Recovery Determination: With respect to any defaulted Loan or
any Foreclosure Property, a determination made by the Servicer that all Mortgage
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

            Financial Covenants: With respect to Option One, the following
financial covenants:

                                      -10-
<PAGE>

            (a) Option One must maintain a minimum "Tangible Net Worth" (defined
and determined in accordance with GAAP and exclusive of (i) any loans
outstanding to any officer or director of Option One or its Affiliates (ii) any
intangibles (other than originated or purchased servicing rights) and (iii) any
receivables from H&R Block) of $425 million as of any day.

            (b) Option One must maintain a ratio of 1.0 or greater at any time
pursuant to the Capital Adequacy Test, attached as Exhibit H hereto.

            (c) Option One may not exceed a maximum non-warehouse leverage
ratio (the ratio of (i) the sum of (A) all funded debt (excluding debt from H&R
Block or any of its Affiliates and all non-recourse debt) less (B) 91% of its
mortgage loan inventory held for sale less (C) 90% of servicing advance
receivables (determined and valued in accordance with GAAP) to (ii) Tangible Net
Worth) of 0.50x at any time. Any direct or indirect debt provided by H&R Block
or any of its Affiliates will be subject to the Subordination Agreement; or, if
H&R Block does not enter into the Subordination Agreement, the maximum permitted
non- warehousing leverage ratio including debt from H&R Block will be 1.0x at
any time, provided, that no more than 0.5x of such non-warehouse leverage ratio
can be funded by entities not affiliated with Option One or H&R Block.

            (d) Option One will maintain a minimum liquidity facility (defined
as a committed, unsecured, non-amortizing liquidity facility from H&R Block not
to mature (scheduled or accelerated) prior to the Maturity Date) in an amount no
less than $150 million. Such facility from H&R Block cannot contain covenants or
termination events more restrictive than the covenants or termination events
contained in the Basic Documents.

            (e) Option One must maintain a minimum "Net Income" (defined and
determined in accordance with GAAP) of at least $1 based on the total of the
current quarter combined with the previous three quarters.

            First Lien Loan: A Loan secured by the lien on the related Mortgaged
Property, subject to no prior liens on such Mortgaged Property.

            Foreclosed Loan: As of any Determination Date, any Loan that as of
the end of the preceding Remittance Period has been discharged as a result of
(i) the completion of foreclosure or comparable proceedings by the Servicer, on
behalf of the Issuer; (ii) the acceptance of the deed or other evidence of title
to the related Mortgaged Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition of title to the related Mortgaged Property
by operation of law.

            Foreclosure Property: Any real property securing a Foreclosed Loan
that has been acquired by the Servicer on behalf of the Issuer through
foreclosure, deed in lieu of foreclosure or similar proceedings in respect of
the related Loan.

            Freddie Mac: The Federal Home Loan Mortgage Corporation and any
successor thereto.

            Funding Account: As defined in the Advance Indenture.

                                      -11-
<PAGE>

            Funding Date: With respect to the Advance Note, the day on which
Additional Note Balance is purchased by the Issuer under the Advance Note
Purchase Agreement.

            Funding Notice: As defined in the Advance Indenture.

            GAAP: Generally Accepted Accounting Principles as in effect in the
United States.

            Gross Margin: With respect to each ARM, the fixed percentage amount
set forth in the related Promissory Note.

            H&R Block: H&R Block Inc. and any successor thereto.

            Hedge Funding Requirement: With respect to any day, all amounts
required to be paid or delivered by the Issuer under any Hedging Instrument,
whether in respect of payments thereunder or in order to meet margin, collateral
or other requirements thereof. Such amounts shall be calculated by the Market
Value Agent and the Indenture Trustee shall be notified of such amount by the
Market Value Agent.

            Hedge Value: With respect to any Business Day and a specific Hedging
Instrument the positive amount, if any, that is equal to the amount that would
be paid to the Issuer in consideration of an agreement between the Issuer and an
unaffiliated third party, that would have the effect of preserving for the
Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument
until the termination thereof, as determined by the Market Value Agent in
accordance with Section 6.03 hereof.

            Hedging Counterparty: A Person (i) (A) the long-term and commercial
paper or short-term deposit ratings of which are acceptable to the Majority
Noteholders and (B) which shall agree in writing that, in the event that any of
its long-term or commercial paper or short-term deposit ratings cease to be at
or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the request of the Majority
Noteholders, (ii) that has entered into a Hedging Instrument and (iii) that is
acceptable to the Majority Noteholders.

            Hedging Instrument: Any interest rate cap agreement, interest rate
floor agreement, interest rate swap agreement or other interest rate hedging
agreement entered into by the Issuer with a Hedging Counterparty, and which
requires the Hedging Counterparty to deposit all amounts payable thereby
directly to the Collection Account. Each Hedging Instrument shall meet the
requirements set forth in Article VII hereof with respect thereto.

            High LTV Loans: First Lien Loans with an LTV, and Second Lien Loans
(which are not Piggy-Backed Loans) with a CLTV, greater than or equal to 85% and
less than or equal to 100%.

            Indenture: The Indenture dated as of April 1, 2001, and as amended
and restated through and including November 25, 2003, between the Issuer and the
Indenture Trustee, as the same may be further amended or supplemented from time
to time.

                                      -12-
<PAGE>

            Indenture Trustee: Wells Fargo Bank Minnesota, National Association,
a national banking association, as Indenture Trustee under the Indenture, or any
successor indenture trustee under the Indenture.

            Indenture Trustee Fee: An annual fee of $5,000 payable by the
Servicer in accordance with a separate fee agreement between the Indenture
Trustee and the Servicer and Section 5.01 hereof.

            Independent: When used with respect to any specified Person, such
Person (i) is in fact independent of the Loan Originator, the Servicer, the
Depositor or any of their respective Affiliates, (ii) does not have any direct
financial interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates
merely because such Person is the beneficial owner of 1% or less of any class of
securities issued by the Loan Originator, the Depositor, the Servicer or any of
their respective Affiliates, as the case may be.

            Independent Accountants: A firm of nationally recognized certified
public accountants which is independent according to the provisions of SEC
Regulation S-X, Article 2.

            Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.

            Initial Noteholder: Bank of America, N.A. or an Affiliate thereof
identified in writing by Bank of America, N.A. to the Indenture Trustee and the
other parties hereto.

            Interest Carry-Forward Amount: With respect to any Payment Date, the
excess, if any, of (A) the Interest Payment Amount for such Payment Date plus
the Interest Carry-Forward Amount for the prior Payment Date over (B) the amount
in respect of interest that is actually paid from the Distribution Account on
such Payment Date in respect of the interest for such Payment Date.

            Interest Payment Amount: With respect to any Payment Date, the sum
of the Daily Interest Accrual Amounts for all days in the related Accrual
Period.

            LIBOR Business Day: Any day on which banks in the City of London are
open and conducting transactions in United States dollars.

            LIBOR Determination Date: With respect to each Accrual Period, each
day during such Accrual Period.

            LIBOR Margin: with respect to each Accrual Period, the percentage
corresponding to the Unfunded Transfer Obligation Percentage as of each LIBOR
Determination Date, as set forth in the following table:

                                      -13-
<PAGE>

<TABLE>
<CAPTION>
Unfunded Transfer Obligation Percentage:             LIBOR Margin:
- ----------------------------------------             -------------
<S>                                                  <C>
>= 8.00%                                                  0.50%
>= 4.00%, but < 8.00%                                     1.25%
< 4.00%                                                   2.00%
</TABLE>

provided, further, that the LIBOR Margin shall be equal to 2.00% upon the
occurrence of an Event of Default or for the period commencing on the Payment
Date identified in clause (i) of the definition of Clean-up Call Date.

            Lien: With respect to any asset, (a) any mortgage, lien, pledge,
charge, security to interest, hypothecation, option or encumbrance of any kind
in respect of such asset or (b) the interest of a vendor or lessor under any
conditional sale agreement, financing lease or other title retention agreement
relating to such asset.

            Lifetime Cap: The provision in the Promissory Note for each ARM
which limits the maximum Loan Interest Rate over the life of such ARM.

            Lifetime Floor: The provision in the Promissory Note for each ARM
which limits the minimum Loan Interest Rate over the life of such ARM.

            Liquidated Loan: As defined in Section 4.03(c) of the Servicing
Addendum.

            Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds allocable
to principal received on or prior to such date.

            Liquidation Proceeds: With respect to a Liquidated Loan, any cash
amounts received in connection with the liquidation of such Liquidated Loan,
whether through trustee's sale, foreclosure sale or other disposition, any cash
amounts received in connection with the management of the Mortgaged Property
from Defaulted Loans, any proceeds from Primary Insurance Policies, and any
other amounts required to be deposited in the Collection Account pursuant to
Section 5.01(b)(1) hereof, in each case other than Mortgage Insurance Proceeds
and Released Mortgaged Property Proceeds. Liquidation Proceeds shall also
include any awards or settlements in respect of the related Mortgage Property,
whether permanent or temporary, partial or entire, by exercise of the power of
eminent domain or condemnation.

            Loan: Any loan sold to the Trust hereunder and pledged to the
Indenture Trustee, which loan includes, without limitation, (i) a Promissory
Note and related Mortgage and (ii) all right, title and interest of the Loan
Originator in and to the Mortgaged Property covered by such Mortgage. The term
Loan shall be deemed to include the related Promissory Note, related Mortgage
and related Foreclosure Property, if any.

            Loan Documents: With respect to a Loan, the documents comprising the
Custodial Loan File for such Loan File.

            Loan File: With respect to each Loan, the Custodial Loan File and
the Servicer's Loan

                                      -14-
<PAGE>

            Loan Interest Rate: With respect to each Loan, the annual rate of
interest borne by the related Promissory Note, as shown on the Loan Schedule,
and, in the case of an ARM, as the same may be periodically adjusted in
accordance with the terms of such Loan.

            Loan Originator: Option One and its permitted successors and
assigns.

            Loan Pool: As of any date of determination, the pool of all Loans
conveyed to the Issuer pursuant to this Agreement on all Transfer Dates up to
and including such date of determination, which Loans have not been released
from the Lien of the Indenture pursuant to the terms of the Basic Documents,
together with the rights and obligations of a holder thereof, and the payments
thereon and proceeds therefrom received on and after the applicable Transfer
Cut-off Date, as identified from time to time on the Loan Schedule.

            Loan Purchase and Contribution Agreement: The Loan Purchase and
Contribution Agreement, between Option One, as seller and the Depositor, as
purchaser, dated as of April 1, 2001, and all supplements and amendments
thereto.

            Loan Schedule: The schedule of Loans conveyed to the Issuer on the
Closing Date and on each Transfer Date and delivered to the Initial Noteholder
and the Custodian in the form of a computer-readable transmission specifying the
information set forth in Exhibit C to the Custodial Agreement.

            Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the
ratio of the original outstanding principal amount of such Loan to the lesser of
(a) the Appraised Value of the Mortgaged Property at origination or (b) if the
Mortgaged Property was purchased within 12 months of the origination of the
Loan, the purchase price of the Mortgaged Property.

            LPA Assignment: The Assignment of Loans from Option One to the
Depositor under the Loan Purchase and Contribution Agreement.

            Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

            Majority Noteholders: The holder or holders of in excess of 50% of
the Note Principal Balance. In the event of the release of the Lien of the
Indenture in accordance with the terms thereof, the Majority Noteholders shall
mean the Majority Certificateholders.

            Market Value: The market value of a Loan as of any Business Day as
determined by the Market Value Agent in accordance with Section 6.03 hereof.

            Market Value Agent: Bank of America, N.A. or an Affiliate thereof
designated by Bank of America, N.A. in writing to the parties hereto and, in
either case, its successors in interest.

            Master Disposition Confirmation Agreement: The Master Disposition
Confirmation Agreement dated as of March 1, 2001, by and among Option One
Mortgage Corporation, the Depositor, Option One Owner Trust 2001-1 A, Option One
Owner Trust 2001-1 B, Option One Owner Trust 2001-2, Wells Fargo Bank Minnesota,
National Association, Bank

                                      -15-
<PAGE>

of America, N.A., Greenwich Capital Financial Products, Inc. and Steamboat
Funding Corporation.

            Maturity Date: With respect to the Notes, as set forth in the
Indenture or such later date as may be agreed in writing by the Majority
Noteholders.

            Maximum Cumulative Loss Ratio: With respect to all mortgage loans
originated in the same calendar year (each year's loans being considered as a
single pool) and serviced by Option One (whether or not such mortgage loans are
sold or contributed to the Depositor), beginning with mortgage loans originated
in 1997 (measured on a static pool basis) the cumulative losses on each such
pool may not exceed 1.50% in the first year, 2.25% in the second year, 2.85% in
the third year, 3.60% in the fourth year and 4.25% thereafter.

            Maximum Note Principal Balance: As defined in Section 1.01 of the
Note Purchase Agreement.

            Mixed Use Loan: A Loan secured by a Mortgaged Property that is used
primarily for residential purposes, but which is also used for non-residential
purposes.

            Monthly Advance: The aggregate of the advances made by the Servicer
on any Remittance Date pursuant to Section 4.14 of the Servicing Addendum.

            Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Borrower on the related Loan, as set forth in
the related Promissory Note.

            Monthly Remittance Amount: With respect to each Remittance Date, the
sum, without duplication, of (i) the aggregate payments on the Loans collected
by the Servicer pursuant to Section 5.01(b)(1)(i) during the immediately
preceding Remittance Period and (ii) the aggregate of amounts deposited into the
Collection Account pursuant to Section 5.01(b)(1)(ii) through 5.01(b)(1)(vi) and
Section 5.01(b)(1)(xi) during the immediately preceding Remittance Period and
(iii) any Termination Price, cash Disposition Proceeds and payments by Hedging
Counterparties received on or prior to the related Determination Date and not
previously included in a Monthly Remittance Amount.

            Moody's: Moody's Investors Service, Inc., or any successor thereto.

            Mortgage: With respect to any Loan, the mortgage, deed of trust or
other instrument securing the related Promissory Note, which creates a first or
second lien on the fee in real property and/or a first or second lien on the
leasehold estate in real property securing the Promissory Note and the
assignment of rents and leases related thereto.

            Mortgage Insurance Policies: With respect to any Mortgaged Property
or Loan, the insurance policies required pursuant to Section 4.08 of the
Servicing Addendum.

            Mortgage Insurance Proceeds: With respect to any Mortgaged Property,
all amounts collected in respect of Mortgage Insurance Policies and not required
either pursuant to

                                      -16-
<PAGE>

applicable law or the related Loan Documents to be applied to the restoration of
the related Mortgaged Property or paid to the related Borrower.

            Mortgaged Property: With respect to a Loan, the related Borrower's
fee and/or leasehold interest in the real property (and/or all improvements,
buildings, fixtures, building equipment and personal property thereon (to the
extent applicable) and all additions, alterations and replacements made at any
time with respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by the related Promissory Note.

            Net Liquidation Proceeds: With respect to any Payment Date,
Liquidation Proceeds received during the prior Remittance Period, net of any
reimbursements to the Servicer made from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, inspection, conservation and liquidation of the related
Liquidated Loans or Foreclosure Properties pursuant to Section 4.03 of the
Servicing Addendum.

            Net Loan Losses: With respect to any Defaulted Loan that is subject
to a modification pursuant to Section 4.01 of the Servicing Addendum, an amount
equal to the portion of the Principal Balance, if any, released in connection
with such modification.

            Net Portfolio Yield: The annualized percentage equivalent of a
fraction: (i) the numerator of which is equal to accrued interest on the Advance
Note and the Loans (excluding accrued interest on Loans Delinquent over 30 days)
for the related Accrual Period, less all interest, fees and expenses due to the
Noteholders and less any Servicing Fees, and (ii) the denominator of which is
the average Note Principal Balance for such Accrual Period.

            Nonrecoverable Monthly Advance: Any Monthly Advance previously made
or proposed to be made with respect to a Loan or Foreclosure Property that, in
the good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, will
not, or, in the case of a proposed Monthly Advance, would not be, ultimately
recoverable from the related late payments,. Mortgage Insurance Proceeds
Liquidation Proceeds or condemnation proceeds on such Loan or Foreclosure
Property as provided herein.

            Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Liquidation Proceeds,
Mortgage Insurance Proceeds or the Released Mortgaged Property Proceeds on the
related Loan or Foreclosure Property or (b) a Servicing Advance proposed to be
made in respect of a Loan or Foreclosure Property either of which, in the good
faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, would
not be ultimately recoverable.

            Note: The meaning assigned thereto in the Indenture.

            Noteholder: The meaning assigned thereto in the Indenture.

                                      -17-
<PAGE>

            Note Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin for such Accrual Period.

            Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased on
or prior to such date pursuant to the Note Purchase Agreement less (b) all
amounts previously distributed in respect of principal of the Notes on or prior
to such day.

            Note Purchase Agreement: The Note Purchase Agreement, dated as of
April 18, 2001, and as amended and restated as of November 25, 2003, among the
Initial Noteholder, the Issuer and the Depositor, as the same may be amended
from time to time.

            Note Redemption Amount: As of any Determination Date, an amount
without duplication equal to the sum of (i) the then outstanding Note Principal
Balance of the Notes, plus the Interest Payment Amount for the related Payment
Date, (ii) any Trust Fees and Expenses due and unpaid on the related Payment
Date, (iii) any Servicing Advance Reimbursement Amount as of such Determination
Date and (iv) all amounts due to Hedging Counterparties in respect of the
termination of all related Hedging Instruments.

            Officer's Certificate: A certificate signed by a Responsible Officer
of the Depositor, the Loan Originator, the Servicer or the Issuer, in each case,
as required by this Agreement.

            One-Month LIBOR: With respect to each Accrual Period, the rate
determined by the Initial Noteholder on each LIBOR Determination Date on the
basis of the offered rate for one-month U.S. dollar deposits, as such rate
appears on Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR
Determination Date; provided that if such rate does not appear on Telerate Page
3750, the rate for such date will be determined on the basis of the offered
rates of the Reference Banks for one-month U.S. dollar deposits, as of 11:00
a.m. (London time) on such LIBOR Determination Date. In such event, the Initial
Noteholder will request the principal London office of each of the Reference
Banks to provide a quotation of its rate. If on such LIBOR Determination Date,
two or more Reference Banks provide such offered quotations, One-Month LIBOR on
such LIBOR Determination Date shall be the arithmetic mean of all such offered
quotations (rounded to the nearest whole multiple of 1/16%). If on such LIBOR
Determination Date, fewer than two Reference Banks provide such offered
quotations, One-Month LIBOR for such LIBOR Determination Date shall be the
higher of (i) LIBOR as determined on the previous LIBOR Determination Date and
(ii) the Reserve Interest Rate. Notwithstanding the foregoing, if, under the
priorities described above, One-Month LIBOR for a LIBOR Determination Date would
be based on One-Month LIBOR for the previous LIBOR Determination Date for the
third consecutive LIBOR Determination Date, the Initial Noteholder shall select
an alternative comparable index (over which the Initial Noteholder has no
control), used for determining one-month Eurodollar lending rates that is
calculated and published (or otherwise made available) by an independent party.

            Opinion of Counsel: A written opinion of counsel who may be employed
by the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

                                      -18-
<PAGE>

            Option One: Option One Mortgage Corporation, a California
corporation.

            Overcollateralization Shortfall: With respect to any Business Day,
an amount equal to the positive difference, if any, between (a) the Note
Principal Balance on such Business Day and (b) (i) the aggregate Collateral
Value of the Advance Note and all Loans in the Loan Pool as of such Business
Day, or (ii) in the event that a Performance Trigger shall have occurred and not
been Deemed Cured, the aggregate Collateral Value of the Advance Note and all
Loans in the Loan Pool as of such Business Day multiplied by 0.98; provided,
however, that, in either case, on (A) the termination of the Revolving Period,
(B) the occurrence of a Rapid Amortization Trigger, (C) the Payment Date on
which the Trust is to be terminated pursuant to Section 10.02 hereof, or (D) the
Final Put Date, the Overcollateralization Shortfall shall be equal to the Note
Principal Balance. Notwithstanding anything to the contrary herein, in no event
shall the Overcollateralization Shortfall, with respect to any Business Day,
exceed the Note Principal Balance as of such date. If as of such Business Day,
no Rapid Amortization Trigger or Default under this Agreement or the Indenture
shall be in effect, the Overcollateralization Shortfall shall be reduced (but in
no event to an amount below zero) by all or any portion of the aggregate Hedge
Value as of such Payment Date as the Majority Noteholders may, in their sole
discretion, designate in writing.

            Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.

            Owner Trustee Fee: The annual fee of $4,000 payable in equal monthly
installments to the Servicer pursuant to Section 5.01(c)(3)(i) which shall in
turn pay such amount annually to the Owner Trustee on the anniversary of the
Closing Date occurring each year during the term of this Agreement.

            Payment Date: Each of, (i) the 10th day of each calendar month
commencing on the first such 10th day to occur after the first Transfer Date, or
if any such day is not a Business Day, the first Business Day immediately
following such day, (ii) any day a Loan is sold pursuant to the terms hereof,
(iii) a Put Date as specified by the Majority Noteholder pursuant to Section
10.05 of the Indenture and (iv) an additional Payment Date pursuant to Section
5.01(c)(4)(i) and 5.01(c)(4)(iii). From time to time, the Majority Noteholders
and the Issuer may agree, upon written notice to the Owner Trustee and the
Indenture Trustee, to additional Payment Dates in accordance with Section
5.01(c)(4)(ii).

            Payment Statement: As defined in Section 6.01(b) hereof. Percentage
Interest: As defined in the Trust Agreement.

            Performance Trigger: As of any Determination Date, the existence of
one or more of the following conditions:

            (i) the aggregate Principal Balance of all Loans that are 30 to 59
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 5%, provided, however,
that a Performance Trigger shall not

                                      -19-
<PAGE>

occur if such percentage is reduced to less than 5% within 3 Business Days of
such Determination Date as the result of the exercise of a Servicer Call;

            (ii) the aggregate Principal Balance of all Loans that are 60 to 89
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 2%, provided, however,
that a Performance Trigger shall not occur if such percentage is reduced to less
than 2% within 3 Business Days of such Determination Date as the result of the
exercise of a Servicer Call;

            (iii) (x) the aggregate Liquidated Loan Losses for the three
calendar months preceding such Determination Date divided by (y) the average
Pool Principal Balance during such three calendar months (measured for each such
calendar month at the end of the Remittance Period) is greater than 0.25% and a
Performance Trigger shall continue to exist until Deemed Cured.

            Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note, which
is the maximum annual percentage by which the Loan Interest Rate for such Loan
may increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on
such Rate Change Date from the Loan Interest Rate in effect immediately prior to
such Rate Change Date.

            Permitted Investments: Each of the following:

            (a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.

            (b) Federal Housing Administration debentures rated Aa2 or higher by
Moody's and AA or better by S&P.

            (c) Freddie Mac senior debt obligations rated Aa2 or higher by
Moody's and AA or better by S&P.

            (d) Federal Home Loan Banks' consolidated senior debt obligations
rated Aa2 or higher by Moody's and AA or better by S&P.

            (e) Fannie Mae senior debt obligations rated Aa2 or higher by
Moody's.

            (f) Federal funds, certificates or deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 or better by Moody's.

            (g) Investment agreements approved by the Initial Noteholder
provided:

                                      -20-
<PAGE>

            1. The agreement is with a bank or insurance company which has an
unsecured, uninsured and unguaranteed obligation (or claims-paying ability)
rated Aa2 or better by Moody's and AA or better by S&P, and

            2. Monies invested thereunder may be withdrawn without any penalty,
premium or charge upon not more than one day's notice (provided such notice may
be amended or canceled at any time prior to the withdrawal date), and

            3. The agreement is not subordinated to any other obligations of
such insurance company or bank, and

            4. The same guaranteed interest rate will be paid on any future
deposits made pursuant to such agreement, and

            5. The Indenture Trustee and the Initial Noteholder receive an
opinion of counsel that such agreement is an enforceable obligation of such
insurance company or bank.

            (h) Commercial paper (having original maturities of not more than
365 days) rated A-1 or better by S&P and P-1 or better by Moody's.

            (i) Investments in money market funds rated AAAM or AAAM-G by S&P
and Aaa or P-1 by Moody's.

            (j) Investments approved in writing by the Initial Noteholder;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

            Each reference in this definition to the Rating Agency shall be
construed, as a reference to each of S&P and Moody's.

            Person: Any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.

            Physical Property: As defined in clause (b) of the definition of
"Delivery" above.

            Piggy-Backed Loan: A combined First Lien Loan, with an LTV less than
or equal to 80%, and Second Lien Loan, with a CLTV less than or equal to 100%,
that satisfy the underwriting criteria set forth in Exhibit D hereto and have a
minimum FICO score of 600.

                                      -21-
<PAGE>

            Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of such Determination Date.

            Premium Recapture: Any portion of a Premium that the Loan Originator
receives back from a third party seller of a Loan.

            Prepaid Installment: With respect to any Loan, any installment of
principal thereof and interest thereon received prior to the scheduled Due Date
for such installment, intended by the Borrower as an early payment thereof and
not as a Prepayment with respect to such Loan.

            Prepayment: Any payment of principal of a Loan which is received by
the Servicer in advance of the scheduled due date for the payment of such
principal (other than the principal portion of any Prepaid Installment), and the
proceeds of any Mortgage Insurance Policy which are to be applied as a payment
of principal on the related Loan shall be deemed to be Prepayments for all
purposes of this Agreement.

            Preservation Expenses: Expenditures made by the Servicer in
connection with a foreclosed Loan prior to the liquidation thereof, including,
without limitation, expenditures for real estate property taxes, hazard
insurance premiums, property restoration or preservation.

            Primary Insurance Policy: A policy of primary mortgage guaranty
insurance issued by a Qualified Insurer pursuant to Section 4.06 of the
Servicing Addendum.

            Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other date of determination, the
outstanding unpaid principal balance of the Loan as of the end of the preceding
Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan
prior to the end of such Remittance Period); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.

            Proceeding: Means any suit in equity, action at law or other
judicial or administrative proceeding.

            Promissory Note: With respect to a Loan, the original executed
promissory note or other evidence of the indebtedness of the related Borrower or
Borrowers.

            Put/Call Loan: Any (i) Loan that has become 30 or more days (but
less than 60 days) Delinquent, (ii) Loan that has become 60 or more days (but
less than 90 days) Delinquent, (iii) Loan that has become 90 or more days
Delinquent, (iv) Defaulted Loan, (v) Loan that has been in default for a period
of 30 days or more (other than a Loan referred to in clause (i), (ii), (iii) or
(iv) hereof), (vi) Loan that does not meet criteria established by independent
rating agencies or surety agency conditions for Dispositions which criteria have
been established at the related Transfer Date and may be modified only to match
changed criteria of independent rating agencies or surety agents, or (vii) Loan
that is inconsistent with the intended tax status of a Securitization.

                                      -22-
<PAGE>

            Put Date: Any date on which all or a portion of the Notes are to be
purchased by the Issuer as a result of the exercise of the Put Option.

            Put Option: The right of the Majority Noteholders to require the
Issuer to repurchase all or a portion of the Notes in accordance with Section
10.04 of the Indenture.

            QSPE Affiliate: Any of Option One Owner Trust 2001-1 A, Option One
Owner Trust 2001-1 B, Option One Owner Trust 2002-3, Option One Owner Trust
2003-4, Option One Owner Trust 2003-5, or any other Affiliate which is a
"qualified special purpose entity" in accordance with Financial Accounting
Standards Board's Statement No. 140.

            Qualified Insurer: An insurance company duly qualified as such under
the laws of the states in which the Mortgaged Property is located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided and that meets the requirements of
Fannie Mae and Freddie Mac.

            Qualified Substitute Loan: A Loan or Loans substituted for a Deleted
Loan pursuant to Section 3.06 hereof, which (i) has or have been approved in
writing by the Majority Noteholders and (ii) complies or comply as of the date
of substitution with each representation and warranty set forth in Exhibit E and
is or are not 30 or more days Delinquent as of the date of substitution for such
Deleted Loan or Loans.

            Rapid Amortization Trigger: As of any Determination Date, the
existence of one or more of the following conditions as of such Determination
Date:

            (i) the aggregate Principal Balance of all Loans that are 30 to 59
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 7%; provided, however,
that a Rapid Amortization Trigger shall not occur if such percentage is reduced
to less than 5% within 3 Business Days of such Determination Date as a result of
the exercise of a Servicer Call;

            (ii) the aggregate Principal Balance of all Loans that are 60 to 89
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 3%; provided, however,
that a Rapid Amortization Trigger shall not occur if such percentage is reduced
to less than 2% within 3 Business Days of such Determination Date as a result of
the exercise of a Servicer Call;

            (iii) (x) the aggregate Liquidated Loan Losses for the three
calendar months preceding such Determination Date divided by (y) the average
Pool Principal Balance of the Loans during such three calendar months (measured
for each calendar month at the end of the Remittance Period) is greater than
0.25%;

            (iv) the Net Portfolio Yield averaged for any three consecutive
months is less than 1.75%;

            (v) the Delinquency Ratio exceeds 15%; and

            (vi) the Maximum Cumulative Loss Ratio is exceeded.

                                      -23-
<PAGE>

A Rapid Amortization Trigger shall continue to exist until it is Deemed Cured.

            Rate Change Date: The date on which the Loan Interest Rate of each
ARM is subject to adjustment in accordance with the related Promissory Note.

            Rating Agencies: S&P and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.

            Receivables Purchase Agreement: The Receivables Purchase Agreement,
dated as of November 1, 2003, among Option One, the Advance Depositor and the
Advance Trust.

            Receivables Seller: Option One.

            Record Date: With respect to each Payment Date, the close of
business of the immediately preceding Business Day.

            Reference Banks: Bankers Trust Company, Barclay's Bank PLC, The
Tokyo Mitsubishi Bank and National Westminster Bank PLC and their successors in
interest; provided, however, that if the Initial Noteholder determines that any
of the foregoing banks are not suitable to serve as a Reference Bank, then any
leading banks selected by the Initial Noteholder with the approval of the
Issuer, which approval shall not be unreasonably withheld, which are engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London and (ii) which have been
designated as such by the Initial Noteholder with the approval of the Issuer,
which approval shall not be unreasonably withheld. Three money center banks
selected by the Initial Noteholder.

            Refinanced Loan: A Loan the proceeds of which were not used to
purchase the related Mortgaged Property.

            Released Mortgaged Property Proceeds: With respect to any Loan,
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which proceeds in
either case are not released to the Borrower in accordance with applicable law
and/or Accepted Servicing Practices.

            Remittance Date: The Business Day immediately preceding each Payment
Date.

            Remittance Period: With respect to any Payment Date, the period
commencing immediately following the Determination Date for the preceding
Payment Date (or, in the case of the initial Payment Date, commencing
immediately following the initial Transfer Cut-off Date) and ending on and
including the related Determination Date.

            Repurchase Price: With respect to a Loan the sum of (i), the
Principal Balance thereof as of the date of purchase or repurchase, plus (ii)
all accrued and unpaid interest on such Loan to the date of purchase or
repurchase computed at the applicable Loan Interest Rate, plus (iii) the amount
of any unreimbursed Servicing Advances made by the Servicer with respect to

                                      -24-
<PAGE>

such Loan (after deducting therefrom any amounts received in respect of such
purchased or repurchased Loan and being held in the Collection Account for
future distribution to the extent such amounts represent recoveries of principal
not yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase). The
Repurchase Price shall be (i) increased by the net negative value or (ii)
decreased by the net positive value of all Hedging Instruments terminated with
respect to the purchase of such Loan. To the extent the Servicer does not
reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such
Loan, the Repurchase Price shall be .reduced by such amounts.

            Reserve Interest Rate: With respect to any LIBOR Determination Date,
the rate per annum that the Initial Noteholder determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Initial Noteholder are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or (ii)
in the event that the Initial Noteholder can determine no such arithmetic mean,
the lowest one-month U.S. dollar lending rate which New York City banks selected
by the Initial Noteholder are quoting on such LIBOR Determination Date to
leading European banks.

            Responsible Officer: When used with respect to the Indenture Trustee
or Custodian, any officer within the corporate trust office of such Person,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Administrator to the Owner Trustee on the date hereof (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Vice President or more senior officer
of the Administrator who is authorized to act for the Administrator in matters
relating to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Responsible
Officers delivered by the Administrator to the Owner Trustee on the date hereof
(as such list may be modified or supplemented from time to time thereafter).
When used with respect to the Depositor, the Loan Originator or the Servicer,
the President, any Vice President, or the Treasurer.

            Retained Securities: With respect to a Securitization, any
subordinated securities issued or expected to be issued, or excess collateral
value retained or expected to be retained, in connection therewith to the extent
the Depositor, the Loan Originator or an Affiliate thereof retains, instead of
sell, such securities.

            Retained Securities Value: With respect to any Business Day and a
Retained Security, the market value thereof as determined by the Market Value
Agent in accordance with Section 6.03(d) hereof.

                                      -25-
<PAGE>

            Revolving Period: With respect to the Notes, the period commencing
on April 19, 2001 and ending on the earlier of (i) the date on which the
Revolving Period is terminated pursuant to Section 2.07 and (ii) the Maturity
Date.

            Sales Price: For any Transfer Date, the sum of the Collateral Values
with respect to each Loan conveyed on such Transfer Date as of such Transfer
Date.

            S&SA Assignment: An Assignment, in the form of Exhibit C hereto, of
Loans and other property from the Depositor to the Issuer pursuant to this
Agreement.

            Scratch & Dent Loan: A Loan identified as having minor
documentation, appraisal or underwriting deficiencies, which Loan may not be
Delinquent on the Transfer Date; provided, that the Loan Originator has provided
a detailed description of such deficiencies to the Initial Noteholder prior to
the Transfer Date (or, with respect to Loans that become Scratch & Dent Loans
after the Transfer Date, within one Business Day of the discovery, of such
deficiencies); provided further, however, that any Scratch & Dent Loan, which in
the sole judgment of the Loan Originator has deficiencies unacceptable to the
Loan Originator will be deemed an Unqualified Loan and will be repurchased or
substituted pursuant to the procedures in Section 3.06.

            Second Lien Loan: A Loan secured by the lien on the Mortgaged
Property, subject to one Senior Lien on such Mortgaged Property.

            Securities: The Notes and the Trust Certificates.

            Securities Intermediary: A "securities intermediary" as defined in
Section 8-102(a)(14) of the UCC that is holding a Trust Account for the
Indenture Trustee as the sole "entitlement holder" as defined in Section
8-102(a)(7) of the UCC.

            Securitization: A sale or transfer of Loans by the Issuer at the
direction of the Majority Noteholders to any other Person in order to effect one
or a series of structured-finance securitization transactions, including but not
limited to transactions involving the issuance of securities which may be
treated for federal income tax purposes as indebtedness of Option One or one or
more of its wholly-owned subsidiaries.

            Securityholder: Any Noteholder or Certificateholder.

            Senior Lien: With respect to any Second Lien Loan, the mortgage loan
having a senior priority lien on the related Mortgaged Property.

            Servicer: Option One, in its capacity as the servicer hereunder, or
any successor appointed as herein provided.

            Servicer Call: The optional repurchase by the Servicer of a Loan
pursuant to Section 3.08(b) hereof.

            Servicer Event of Default: As described in Section 9.01 hereof.

                                      -26-
<PAGE>

            Servicer Put: The mandatory repurchase by the Servicer, at the
option of the Majority Noteholders, of a Loan pursuant to Section 3.08(a)
hereof.

            Servicer's Fiscal Year: May 1st of each year through April 30th of
the following year.

            Servicer's Loan File: With respect to each Loan, the file held by
the Servicer, consisting of all documents (or electronic images thereof)
relating to such Loan, including, without limitation, copies, of all of the Loan
Documents included in the related Custodial Loan File.

            Servicer's Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.

            Servicing Addendum: The terms and provisions set forth in Exhibit F
attached hereto relating to the administration and servicing of the Loans.

            Servicing Advance Reimbursement Amount: With respect to any
Determination Date, the amount of any Servicing Advances that have not been
reimbursed as of such date, including Nonrecoverable Servicing Advances.

            Servicing Advances: As defined in Section 4.14(b) of the Servicing
Addendum.

            Servicing Compensation: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Section 4.15 of the Servicing Addendum.

            Servicing Fee: As to each Loan (including any Loan that has been
foreclosed and for which the related Mortgaged Property has become a Foreclosure
Property, but excluding any Liquidated Loan), the fee payable monthly to the
Servicer, which shall be the product of 0.50% (50 basis points), or such other
lower amount as shall be mutually agreed to in writing by the Majority
Noteholders and the Servicer, and the Principal Balance of such Loan as of the
beginning of the related Remittance Period, divided by 12. The Servicing Fee
shall only be payable to the extent interest is collected on a Loan.

            Servicing Officer: Any officer of the Servicer or Subservicer
involved in, or responsible for, the administration and servicing of the Loans
whose name and specimen signature appears on a list o servicing officers annexed
to an Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, on the date hereof to the Issuer and the Indenture Trustee, on
behalf of the Noteholders, as such list may from time to time be amended.

            S&P: Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.

            State: Means any one of the states of the United States of America
or the District of Columbia.

            Subordination Agreement: The subordination agreement dated as of
April 1, 2001, among Bank of America, N.A., H&R Block Inc. and Block Financial
Corporation.

                                      -27-
<PAGE>

            Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.22 in the Servicing Addendum in respect of
the qualifications of a Subservicer.

            Subservicing Account: An account established by a Subservicer
pursuant to a Subservicing Agreement, which account must be an Eligible Account.

            Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to Subservicing and/or administration of any or all Loans
as provided in Section 4.22 in the Servicing Addendum.

            Substitution Adjustment: As to any date on which a substitution
occurs pursuant to Section 2.05 or Section 3.06 hereof, the amount, if any, by
which (a) the aggregate principal balance of any Qualified Substitute Loans
(after application of principal payments received on or before the related
Transfer Cut-off Date) is less than (b) the aggregate of the Principal Balances
of the related Deleted Loans as of the first day of the month in which such
substitution occurs.

            Termination Price: As of any Determination Date, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
end of the preceding Remittance Period; (ii) all unpaid interest accrued on the
Principal Balance of each such Loan at the related Loan Interest Rate to the end
of the preceding Remittance Period; (iii) the aggregate fair market value of
each Foreclosure Property included in the Trust as of the end of the preceding
Remittance Period, as determined by an Independent appraiser acceptable to the
Majority Noteholders as of a date not more than 30 days prior to such Payment
Date; (iv) the Note Principal Balance of the Advance Note as of such date; (v)
all accrued and unpaid interest on the Advance Note; and (vi) all other amounts
due under the Advance Documents.

            Transfer Cut-off Date: With respect to each Loan, the first day of
the month in which the Transfer Date with respect to such Loan occurs or if
originated in such month, the date of origination.

            Transfer Cut-off Date Principal Balance: As to each Loan, its
Principal Balance as of the opening of business on the Transfer Cut-off Date
(after giving effect to any payments received on the Loan before the Transfer
Cut-off Date).

            Transfer Date: With respect to each Loan, the day such Loan is
either (i) sold and conveyed to the Depositor by the Loan Originator pursuant to
the Loan Purchase and Contribution Agreement and to the Issuer by the Depositor
pursuant to Section 2.01 hereof or (ii) sold to the Issuer pursuant to the
Master Disposition Confirmation Agreement, which results in an increase in the
Note Principal Balance by the related Additional Note Principal Balance;
provided, that the aggregate Collateral Value of the Loans sold and conveyed on
any Transfer Date shall not be less than $1 million. With respect to any
Qualified Substitute Loan, the Transfer Date shall be the day such Loan is
conveyed to the Trust pursuant to Section 2.05 or 3.06.

            Transfer Obligation: The obligation of the Loan Originator under
Section 5.06 hereof to make certain payments in connection with Dispositions and
other related matters.

                                      -28-
<PAGE>

            Transfer Obligation Account: The account designated as such,
established and maintained pursuant to Section 5.05 hereof.

            Transfer Obligation Target Amount: With respect to any Payment Date,
the cumulative total of all withdrawals pursuant to Section 5.05(e), 5.05(f),
5.05(g), and 5.05(h) hereof from the Transfer Obligation Account to but not
including such Payment Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Loan Originator pursuant to Section
5.05(i)(i).

            Trust: Option One Owner Trust 2001-2, the Delaware business trust
created pursuant to the Trust Agreement.

            Trust Agreement: The Trust Agreement dated as of April 1, 2001 among
the Depositor and the Owner Trustee.

            Trust Account Property: The Trust Accounts, all amounts and
investments held from time to time in the Trust Accounts and all proceeds of the
foregoing.

            Trust Accounts: The Distribution Account, the Collection Account,
the Advance Account and the Transfer Obligation Account.

            Trust Certificate: The meaning assigned thereto in the Trust
Agreement.

            Trust Estate: Shall mean the assets subject to this Agreement, the
Trust Agreement and the Indenture and assigned to the Trust, which assets
consist of (i) such Loans as from time to time are subject to this Agreement as
listed in the Loan Schedule, as the same may be amended or supplemented on each
Transfer Date and by the removal of Deleted Loans and Unqualified Loans and by
the addition of Qualified Substitute Loans, together with the Servicer's Loan
Files and the Custodial Loan Files relating thereto and all proceeds thereof
other than any Premium Recapture, (ii) the Mortgages and security interests in
the Mortgaged Properties, (iii) all payments in respect of interest and
principal with respect to each Loan received on or after the related Transfer
Cut-off Date, (iv) such assets as from time to time are identified as
Foreclosure Property, (v) such assets and funds as are from time to time
deposited in the Distribution Account, Collection Account and the Transfer
Obligation Account, including, without limitation, amounts on deposit in such
accounts that are invested in Permitted Investments other than any Premium
Recapture, (vi) lenders' rights under all Mortgage Insurance Policies and to any
Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds and Released
Mortgaged Property Proceeds, (viii) all right, title and interest of the Trust
(but none of the obligations) in and to the obligations of Hedging
Counterparties under Hedging Instruments, (ix) the Advance Note and all right,
title and interest of the Trust in and under the Advance Documents including,
without limitation, all voting and consent rights of the Noteholders thereunder
and (x) all right, title and interest of each of the Depositor, the Loan
Originator and the Trust in and under the Basic Documents including, without
limitation, the obligations of the Loan Originator under the Loan Purchase and
Contribution Agreement and/or the Master Disposition Confirmation Agreement, and
all proceeds of any of the foregoing.

                                      -29-
<PAGE>

            Trust Fees and Expenses: As of each Payment Date, an amount equal to
the Servicing, Compensation, the Owner Trustee Fee, the Indenture Trustee Fee
and the Custodian Fee, if any, and any expenses of the foregoing.

            UCC: The Uniform Commercial Code as in effect in the State of New
York.

            UCC Assignment: A form "UCC-2" or "UCC-3" statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.

            UCC-1 Financing Statement: A financing statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction.

            Underwriting Guidelines: The underwriting guidelines (including the
loan origination guidelines) of the Loan Originator, as the same may be amended
from time to time with notice to the Initial Noteholder.

            Unfunded Fee Amount: With respect to each Accrual Period, the
interest accrued at the applicable Unfunded Fee Rate with respect to such
Accrual Period on the Unfunded Portion.

            Unfunded Fee Rate: A rate of 0.15%.

            Unfunded Portion: The positive difference between the Note Principal
Balance and the Maximum Note Principal Balance.

            Unfunded Transfer Obligation: With respect to any date of
determination, an amount equal to (x) the sum of (A) 10% of the aggregate
Collateral Value (as of the related Transfer Date) of all Loans sold hereunder,
plus (B) 10% of the aggregate Collateral Value (as of the related Funding Date)
of the initial principal balance of the Advance Note and all Additional
Principal Balance related thereto purchased by the Issuer, plus (C) any amounts
withdrawn from the Transfer Obligation Account for return to the Loan Originator
pursuant to Section 5.05(i)(i) hereof prior to such Payment Date, less (y) the
sum of (i) the aggregate amount of payments actually made by the Loan Originator
in respect of the Transfer Obligation pursuant to Section 5.06, (ii) the amount
obtained by multiplying (a) the Unfunded Transfer Obligation Percentage by (b)
the aggregate Collateral Value (as of the related date of Disposition) of all
Loans that have been subject to a Disposition and (iii) without duplication, the
aggregate amount of the Repurchase Prices paid by the Servicer in respect of any
Servicer Puts.

            Unfunded Transfer Obligation Percentage: As of any date of
determination, an amount equal to (x) the Unfunded Transfer Obligation as of
such date, divided by (y) 100% of the aggregate Collateral Values as of the
related Transfer Date of all Loans in the Loan Pool.

            Unqualified Loan: As defined in Section 3.06(a) hereof

            Wet Funded Custodial File Delivery Date: With respect to a Wet
Funded Loan, the fifteenth calendar day after the related Transfer Date,
provided that if a Default or Event of Default shall have occurred, the Wet
Funded Custodial File Delivery Date shall be the earlier of

                                      -30-
<PAGE>

(x) such fifteenth calendar day and (y) the second Business Day after the
occurrence of such event.

            Wet Funded Loan: A Loan for which the related Custodial Loan File
shall not have been delivered to the Custodian as of the related Transfer Date.

            Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan
sale.

            Section 1.02 Other Definitional Provisions.

            (a) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.

            (b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.

            (c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.

            (d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."

            (e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.

                                      -31-
<PAGE>

                                   ARTICLE II

                         CONVEYANCE OF THE TRUST ESTATE;
                       ADDITIONAL NOTE PRINCIPAL BALANCES

            Section 2.01 Conveyance of the Trust Estate; Additional Note
Principal Balances.

            (a) (1) On the terms and conditions of this Agreement, on each
Transfer Date during the Revolving Period, the Depositor agrees to offer for
sale and to sell a portion of each of the Loans and contribute to the capital
stock of the Issuer the balance of each of the Loans and deliver the related
Loan Documents to or at the direction of the Issuer. To the extent the Issuer
has or is able to obtain sufficient funds under the Note Purchase Agreement and
the Notes for the purchase thereof, the Issuer agrees to purchase such Loans
offered for sale by the Depositor. On the terms and conditions of this Agreement
and the Master Disposition Confirmation Agreement, on each Transfer Date during
the Revolving Period, the Issuer may acquire Loans from another QSPE Affiliate
of the Loan Originator to the extent the Issuer has or is able to obtain
sufficient funds for the purchase thereof. On the terms and conditions of this
Agreement and the Advance Note Purchase Agreement, on each Funding Date during
the Revolving Period, the Issuer shall acquire Additional Note Balance from the
Advance Trust to the extent the Issuer has or is able to obtain sufficient funds
under the Note Purchase Agreement and the Notes for the purchase thereof.

            (2) On each Transfer Date, in consideration of the payment of the
Additional Note Principal Balance pursuant to Section 2.06(a) hereof and as a
contribution to the assets of the Issuer, the Depositor as of the related
Transfer Date and concurrently with the execution and delivery hereof, hereby
sells, transfers, assigns, sets over and otherwise conveys to the Issuer,
without recourse, but subject to the other terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and to the
Trust Estate.

            (3) During the Revolving Period, on each Transfer Date, subject to
the conditions precedent set forth in Section 2.06(a) and in accordance with the
procedures set forth in Section 2.01(c), the Depositor, pursuant to an S&SA
Assignment, will assign to the Issuer without recourse all of its respective
right, title and interest, in and to the Loans and all proceeds thereof listed
on the Loan Schedule attached to such S&SA Assignment, including all interest
and principal received by the Loan Originator, the Depositor or the Servicer on
or with respect to the Loans on or after the related Transfer Cut-off Date,
together with all right, title and interest in and to the proceeds of any
related Mortgage Insurance Policies and all of the Depositor's rights, title and
interest in and to (but none of its obligations under) the Loan Purchase and
Contribution Agreement and all proceeds of the foregoing.

            (4) The foregoing sales, transfers, assignments, set overs and
conveyances do not, and are not intended to, result in a creation or an
assumption by the Issuer of any of the obligations of the Depositor, the Loan
Originator or any other Person in connection with the Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.

                                      -32-
<PAGE>

            (b) As of the Closing Date and as of each Transfer Date and each
Funding Date, the Issuer acknowledges the conveyance to it of the Trust Estate,
including, as applicable, all rights, title and interest of the Depositor and
any QSPE Affiliate in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer. Concurrently with such delivery, as of the Closing
Date and as of each Transfer Date and each Funding Date, pursuant to the
Indenture the Issuer pledges the Trust Estate to the Indenture Trustee. In
addition, concurrently with such delivery and in exchange therefor, the Owner
Trustee, pursuant to the instructions of the Depositor, has executed (not in its
individual capacity, but solely as Owner Trustee on behalf of the Issuer) and
caused the Trust Certificates to be authenticated and delivered to or at the
direction of the Depositor.

            (c) (i) Pursuant to and subject to the Note Purchase Agreement, the
Trust may, at its sole option, from time to time request that the Initial
Noteholder advance on any Transfer Date Additional Note Principal Balances and
the Initial Noteholder shall remit on such Transfer Date to the Advance Account
an amount equal to the Additional Note Principal Balance with respect to such
Transfer Date. Pursuant to and subject to the Note Purchase Agreement, the Trust
shall request that the Initial Noteholder advance on each Funding Date
Additional Note Principal Balances equal to the Additional Note Balance to be
purchased by the Trust on such date and the Initial Noteholder shall remit on
such Funding Date to the Funding Account an amount equal to such Additional Note
Principal Balance.

            (ii) Notwithstanding anything to the contrary herein, in no event
shall the Initial Noteholder be required to advance Additional Note Principal
Balances on a Transfer Date if the conditions precedent with respect to such
Transfer Date under Section 2.06(a) and the conditions precedent to the purchase
of Additional Note Principal Balances set forth in Section 3.01 of the Note
Purchase Agreement have not been fulfilled. Notwithstanding anything to the
contrary herein, in no event shall the Initial Noteholder be required to advance
Additional Note Principal Balances on a Funding Date if the conditions precedent
with respect to such Funding Date under Section 2.06(b), the conditions
precedent to the purchase of Additional Note Principal Balances set forth in
Section 3.02 of the Note Purchase Agreement and the conditions precedent to the
purchase of Additional Principal Balances set forth in Section 3.01 of the
Advance Note Purchase Agreement have not been fulfilled.

            (iii) The Servicer shall appropriately note any Additional Note
Principal Balance (and the increased Note Principal Balance) in the next
succeeding Payment Statement; provided, however, that failure to make any such
notation in such Payment Statement or any error in such notation shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest and principal payments in respect of
the Note Principal Balance held by such Noteholder. The Initial Noteholder shall
record on the schedule attached to such Noteholder's Note, the date and amount
of any Additional Note Principal Balance advanced by it; provided, that failure
to make such recordation on such schedule or any error in such schedule shall
not adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest payments in respect of the Note
Principal Balance held by such Noteholder.

            (iv) Absent manifest error, the Note Principal Balance of each Note
as set forth in the Initial Noteholder's records shall be binding upon the
Noteholders and the Trust,

                                      -33-
<PAGE>

notwithstanding any notation made by the Servicer in its Payment Statement
pursuant to the preceding paragraph.

            Section 2.02 Ownership and Possession of Loan Files.

            With respect to each Loan, as of the related Transfer Date the
ownership of the related Promissory Note, the related Mortgage and the contents
of the related Servicer's Loan File and Custodial Loan File shall be vested in
the Trust for the benefit of the Securityholders, although possession of the
Servicer's Loan File on behalf of and for the benefit of the Securityholders
shall remain with the Servicer, and the Custodian shall take possession of the
Custodial Loan Files as contemplated in Section 2.05 hereof.

            Section 2.03 Books and Records Intention of the Parties.

            (a) As of each Transfer Date, the sale of each of the Loans conveyed
by the Depositor on such Transfer Date shall be reflected on the balance sheets
and other financial statements of the Depositor and the Loan Originator, as the
case may be, as a sale of assets by the Depositor and a sale of assets and a
contribution to capital by the Loan Originator and the Depositor, as applicable,
under GAAP. Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Loan which shall be clearly marked to reflect the ownership of each Loan, as of
the related Transfer Date, by the Issuer and for the benefit of the
Securityholders.

            (b) It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments on the initial Closing Date and on each Transfer Date shall
constitute a sale of the Loans and all related property from the Depositor to
the Issuer and such property shall not be property of the Depositor or the Loan
Originator. It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments on each Funding Date shall constitute a sale of the Advance Note,
the related Additional Note Balances and all related property from the Advance
Trust to the Issuer and such property shall not be property of the Advance
Depositor or the Receivables Seller. The parties hereto shall treat the Notes as
indebtedness for federal, state and local income and franchise tax purposes.

            (c) If any of the assignments and transfers of the Loans and the
other property of the Trust Estate specified in Section 2.01 (a) hereof by the
Depositor to the Issuer pursuant to this Agreement or the conveyance of the
Loans or any of such other property of the Trust Estate by the Depositor to the
Issuer, other than for federal, state and local income or franchise tax
purposes, is held or deemed not to be a sale or is held or deemed to be a pledge
of security for a loan, the Depositor intends that the rights and obligations of
the parties shall be established pursuant to the terms of this Agreement and
that, in such event, with respect to such property, (i) consisting of Loans and
related property, the Depositor shall be deemed to have granted, as of the
related Transfer Date, to the Issuer a first priority security interest in the
entire right, title and interest of the Depositor in and to such Loans and
proceeds and all other property conveyed to the Issuer as of such Transfer Date,
(ii) consisting of any other property specified in Section 2.01(a), the
Depositor shall be deemed to have granted, as of the initial Closing Date, to
the Issuer a first priority security interest in the entire right, title and
interest of the Depositor in and

                                      -34-
<PAGE>

to such property and the proceeds thereof. In such event, with respect to such
property, this Agreement shall constitute a security agreement under applicable
law.

            (d) On the Closing Date, the Depositor shall, at each party's sole
expense, cause to be filed UCC-1 Financing Statements naming the Issuer as
"secured party" and describing the Trust Estate being sold by the Depositor to
the Issuer with the office of the Secretary of State of the state in which the
Depositor is located and any other jurisdictions as shall be necessary to
perfect a security interest in the Trust Estate. In addition, on the Closing
Date, the Loan Originator shall, at its expense, cause to be filed UCC-1
Financing Statements naming the Depositor as "secured party" and describing the
Loans being sold by the Loan Originator to the Depositor with the office of the
Secretary of the State in which the Loan Originator is located and such other
jurisdictions as shall be necessary to perfect a security interest in the Trust
Estate. On or before the initial Funding Date, the Issuer shall, at its expense,
cause to be filed UCC-1 Financing Statements naming the Issuer as "secured
party" and describing the Advance Note being sold by the Advance Trust to the
Issuer with the office of the Secretary of the State in which the Advance Trust
is located and such other jurisdictions as shall be necessary to perfect a
security interest in the Trust Estate.

            Section 2.04 Delivery of Loan Documents.

            (a) The Loan Originator shall, prior to the related Transfer Date,
in accordance with the terms and conditions set forth in the Custodial
Agreement, deliver or cause to be delivered to the Custodian, as the designated
agent of the Indenture Trustee, a Loan Schedule, the Borrowing Base Information
(as defined in the Custodial Agreement) and each document constituting the
Custodial Loan File (or, in the case of a Wet Funded Loan, the Custodial Loan
File must be delivered on or before the related Wet Funded Custodial File
Delivery Date).

            (b) The Loan Originator shall, on the related Transfer Date (or in
the case of a Wet Funded Loan, on or before the related Wet Funded Custodial
File Delivery Date), deliver or cause to be delivered to the Servicer the
related Servicer's Loan File (i) for the benefit of, and as agent for, the
Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf of the
Noteholders, for so long as the Notes are outstanding; after the Notes are not
outstanding, the Servicer's Loan File shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Certificateholders.

            (c) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the State
of California (or upon prior written notice from the Custodian to the Loan
Originator and the Initial Noteholder and delivery of an Opinion of Counsel with
respect to the continued perfection of the Indenture Trustee's security
interest, in the State of. Minnesota or Utah) and, in connection therewith,
shall act solely as agent for the Noteholders in accordance with the terms
hereof and not as agent for the Loan Originator, the Servicer or any other
party.

                                      -35-
<PAGE>

            Section 2.05 Acceptance by the Indenture Trustee of the Loans;
Certain Substitutions and Repurchases; Certification by the Custodian.

            (a) The Indenture Trustee declares that it will cause the Custodian
to hold the Custodial Loan Files and any additions, amendments, replacements or
supplements to the documents contained therein, as well as any other assets
included in the Trust Estate and delivered to the Custodian, in trust, upon and
subject to the conditions set forth herein. The Indenture Trustee further agrees
to cause the Custodian to execute and deliver such certifications as are
required under the Custodial Agreement and to otherwise direct the Custodian to
perform all of its obligations with respect to the Custodial Loan Files in
strict accordance with the terms of the Custodial Agreement.

            (b) (i) With respect to any Loans which are set forth as exceptions
in the Exceptions Report, the Loan Originator shall cure such exceptions by
delivering such missing documents to the Custodian or otherwise curing the
defect no later than, in the case of (x) a non-Wet Funded Loan, 5 Business
Days, or (y) in the case of a Wet Funded Loan one Business Day after the Wet
Funded Custodial File Delivery Date, in each case, following the receipt of the
first Exceptions Report listing such exception with respect to such Loan.

            (ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
Section 2.05, the Loan Originator shall repurchase such Loan within one Business
Day of notice thereof from the Indenture Trustee or the Initial Noteholder at
the Repurchase Price thereof with respect to such Loan by depositing such
Repurchase Price in the Collection Account. In lieu of such a repurchase, the
Depositor and Loan Originator may comply with the substitution provisions of
Section 3.06 hereof. The Loan Originator shall provide the Servicer, the
Indenture Trustee, the Issuer and the Initial Noteholder with a certification of
a Responsible Officer on or prior to such repurchase or substitution indicating
that the Loan Originator intends to repurchase or substitute such Loan.

            (iii) It is understood and agreed that the obligation of the Loan
Originator to repurchase or substitute any such Loan pursuant to this Section
2.05(b) shall constitute the sole remedy with respect to such failure to comply
with the foregoing delivery requirements.

            (c) In performing its reviews of the Custodial Loan Files pursuant
to the Custodial Agreement, the Custodian shall have no responsibility to
determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction.

            (d) The Servicer's Loan File shall be held in the custody of the
Servicer (i) for the benefit of, and as agent for, the Noteholders and (ii) for
the benefit of the Indenture Trustee, on behalf of the Noteholders, for so long
as the Notes are outstanding; after the Notes are not outstanding, the
Servicer's Loan File shall be held in the custody of the Servicer for the
benefit of, and as agent for, the Certificateholders. It is intended that, by
the Servicer's agreement pursuant to this Section 2.05(d), the Indenture Trustee
shall be deemed to have possession of the

                                      -36-
<PAGE>

Servicer's Loan Files for purposes of Section 9-305 of the UCC of the state in
which such documents or instruments are located. The Servicer shall promptly
report to the Indenture Trustee any failure by it to hold the Servicer's Loan
File as herein provided and shall promptly take appropriate action to remedy any
such failure. In acting as custodian of such documents and instruments, the
Servicer agrees not to assert any legal or beneficial ownership interest in the
Loans or such documents or instruments. Subject to Section 8.01(d), the Servicer
agrees to indemnify the Securityholders and the Indenture Trustee, their
officers, directors, employees, agents and "control persons" as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended for
any and all liabilities, obligations, losses, damages, payments, costs or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Securityholders or the Indenture Trustee as the result of the
negligence or willful misfeasance by the Servicer relating to the maintenance
and custody of such documents or instruments which have been delivered to the
Servicer provided, however, that the Servicer will not be liable for any portion
of any such amount resulting from the negligence or willful misconduct of any
Securityholders or the Indenture Trustee; and provided, further, that the
Servicer will not be liable for any portion of any such amount resulting from
the Servicer's compliance with any instructions or directions consistent with
this Agreement issued to the Servicer by the Indenture Trustee or the Majority
Noteholders. The Indenture Trustee shall have no duty to monitor or otherwise
oversee the Servicer's performance as custodian of the Servicer Loan File
hereunder.

            Section 2.06 Conditions Precedent to Transfer Dates and Funding
Dates.

            (a) Two (2) Business Days prior to each Transfer Date, the Issuer
shall give notice to the Initial Noteholder of such upcoming Transfer Date and
provide an estimate of the number of Loans and aggregate Principal Balance of
such Loans to be transferred on such Transfer Date. On the Business Day prior to
each Transfer Date, the Issuer shall provide the Initial Noteholder a final Loan
Schedule with respect to the Loans to be transferred on such Transfer Date. On
each Transfer Date, the Depositor or the applicable QSPE Affiliate shall convey
to the Issuer, the Loans and the other property and rights related thereto
described in the related S&SA Assignment, and the Issuer, only upon the
satisfaction of each of the conditions set forth below on or prior to such
Transfer Date, shall deposit or cause to be deposited cash in the amount of the
Additional Note Principal Balance received from the Initial Noteholder in the
Advance Account in respect thereof, and the Paying Agent shall, promptly after
such deposit, withdraw the amount deposited in respect of applicable Additional
Note Principal Balance from the Advance Account, and distribute such amount to
or at the direction of the Depositor or the applicable QSPE Affiliate in payment
of the Sales Price for the related Loans. If amounts are withdrawn from the
Advance Account in payment of the Sales Price of any Wet Funded Loan that is not
actually funded to the related Borrower on the date of withdrawal, the Loan
Originator shall redeposit or cause to be redeposited such amounts into the
Advance Account prior to the close of business on such day. If the related Loan
is not funded to the related Borrower by 4:00 p.m. New York City time on the
immediately following Business Day, such amount shall be returned by the Paying
Agent to the Initial Noteholder by wire transfer not later than 4:30 p.m. New
York City time on such immediately following Business Day.

            As of the Closing Date and each Transfer Date:

                                      -37-
<PAGE>

            (i) the Depositor, the QSPE Affiliate and the Servicer, as
applicable, shall have delivered to the Issuer and the Initial Noteholder duly
executed Assignments, which shall have attached thereto a Loan Schedule setting
forth the appropriate information with respect to all Loans conveyed on such
Transfer Date and shall have delivered to the Initial, Noteholder a computer
readable transmission of such Loan Schedule;

            (ii) the Depositor shall have deposited, or caused to be deposited,
in the Collection Account all collections received with respect to each of the
Loans on and after the applicable Transfer Cut-off Date or, in the case of
purchases from a QSPE Affiliate, such QSPE Affiliate shall have deposited, or
caused to be deposited, in the Collection Account as collections received with
respect to each of the Loans and allocable to the period after the related
Transfer Date;

            (iii) as of such Transfer Date, neither the Loan Originator, the
Depositor nor the QSPE Affiliate, as applicable, shall (A) be insolvent, (B) be
made insolvent by its respective sale of Loans or (C) have reason to believe
that its insolvency is imminent;

            (iv) the Revolving Period shall not have terminated;

            (v) as of such Transfer Date (after giving effect to the sale of
Loans on such Transfer Date), there shall be no Overcollateralization Shortfall;

            (vi) in the case of non-Wet Funded Loans, the Issuer shall have
delivered the Custodial Loan File to the Custodian in accordance with the
Custodial Agreement and the Initial Noteholder shall have received a Trust
Receipt by 4:30 p.m. New York City time, reflecting such delivery; provided
that, in the event that any Additional Note Principal Balance is to be paid
earlier than 8 a.m. New York City time on the Transfer Date, the Trust Receipt
must be received by the Initial Noteholder prior to 6:00 p.m. New York City time
on the Business Day prior to such Transfer Date;

            (vii) each of the representations and warranties made by the Loan
Originator contained in Exhibit E with respect to the Loans shall be true and
correct in all material respects as of the related Transfer Date with the same
effect as if then made and the proviso set forth in Section 3.05 with respect to
Loans sold by a QSPE Affiliate shall not be applicable to any Loans, and the
Depositor or the QSPE Affiliate, as applicable, shall have performed all
obligations to be performed by it under the Basic Documents on or prior to such
Transfer Date;

            (viii) the Depositor or the QSPE Affiliate shall, at its own
expense, within one Business Day following the Transfer Date, indicate in its
computer files that the Loans identified in each S&SA Assignment have been sold
to the Issuer pursuant to this Agreement and the S&SA Assignment;

            (ix) the Depositor or the QSPE Affiliate shall have taken any action
requested by the Indenture Trustee, the Issuer or the Noteholders required to
maintain the ownership interest of the Issuer in the Trust Estate;

                                      -38-
<PAGE>

            (x) no selection procedures believed by the Depositor or the QSPE
Affiliate to be adverse to the interests of the Noteholders shall have been
utilized in selecting the Loans to be conveyed on such Transfer Date;

            (xi) the Depositor shall have provided the Issuer, the Indenture
Trustee and the Initial Noteholder no later than two Business Days prior to such
date a notice of Additional Note Principal Balance in the form of Exhibit A
hereto;

            (xii) after giving effect to the Additional Note Principal Balance
associated therewith, the Note Principal Balance will not exceed the Maximum
Note Principal Balance;

            (xiii) all conditions precedent to the Depositor's purchase of Loans
pursuant to the Loan Purchase and Contribution Agreement shall have been
fulfilled as of such Transfer Date, and, in the case of purchases from a QSPE
Affiliate, all conditions precedent to the Issuer's purchase of Loans pursuant
to the Master Disposition Confirmation Agreement shall have been fulfilled as of
such Transfer Date;

            (xiv) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note Purchase Agreement shall
have been fulfilled as of such Transfer Date; and

            (xv) with respect to each Loan acquired from any QSPE Affiliate that
has a limited right of recourse to the Loan Originator under the terms of the
applicable loan purchase agreement, the Loan Originator has not been required to
pay any amount to or on behalf of such QSPE Affiliate that lowered the recourse
to the Loan Originator available to such QSPE Affiliate below the maximum
recourse to the Loan Originator available to such QSPE Affiliate under the terms
of the related loan purchase contract providing for recourse by that QSPE
Affiliate to the Loan Originator.

            (b) Two (2) Business Days prior to each Funding Date, the Issuer
shall deliver or cause to be delivered to the Initial Noteholder the Funding
Notice and Funding Date Report delivered by the Receivables Seller pursuant to
the Receivables Purchase Agreement. On each Funding Date, the Issuer shall
purchase the Additional Note Balance issued by the Advance Trust on such Funding
Date and the Issuer, only upon the satisfaction of each of the conditions set
forth below on or prior to such Funding Date, shall cause the Initial Noteholder
to deposit the applicable Additional Note Principal Balance into the Funding
Account.

            As of the each Funding Date:

            (i) the Receivables Seller and the Advance Depositor, shall have
delivered to the Issuer the related Funding Notice and Bill of Sale, and the
exhibits related thereto, pursuant to the Receivables Purchase Agreement;

            (ii) neither the Loan Originator nor the Depositor shall (A) be
insolvent or (B) have reason to believe that its insolvency is imminent;

            (iii) the Revolving Period shall not have terminated;

                                      -39-
<PAGE>

            (iv) after giving effect to the purchase of Additional Note Balance
on such Funding Date, there shall be no Overcollateralization Shortfall;

            (v) the Issuer shall have taken any action requested by the
Indenture Trustee or the Noteholders required to maintain the ownership interest
of the Issuer in the Trust Estate;

            (vi) the Issuer shall have provided the Indenture Trustee and the
Initial Noteholder no later than two Business Days prior to such date a notice
of Additional Note Principal Balance in the form of Exhibit A hereto;

            (vii) after giving effect to the Additional Note Principal Balance
associated therewith, the Note Principal Balance will not exceed the Maximum
Note Principal Balance;

            (viii) all conditions precedent to the Issuer's purchase of
Additional Note Balance pursuant to the Advance Note Purchase Agreement shall
have been fulfilled as of such Funding Date; and

            (ix) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note Purchase Agreement shall
have been fulfilled as of such Funding Date.

            Section 2.07 Termination of Revolving Period.

            Upon the occurrence of (i) an Event of Default or Default or (ii) a
Rapid Amortization Trigger or (iii) the Unfunded Transfer Obligation Percentage
equals 4% or less, the Initial Noteholder may, in any such case, in its sole
discretion, terminate the Revolving Period.

            Section 2.08 Correction of Errors.

            The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price from and after the Closing
Date. In the event that an error in the Sales Price is discovered by either
party, including without limitation, any error due to miscalculations of Market
Value where insufficient information has been provided with respect to a Loan to
make an accurate determination of Market Value as of any applicable Transfer
Date, any miscalculations of Principal Balance, accrued interest,
Overcollateralization Shortfall or aggregate unreimbursed Servicing Advances
attributable to the applicable Loan, or any prepayments not properly credited,
such party shall give prompt notice to the other parties hereto, and the party
that shall have benefited from such error shall promptly remit to the other, by
wire transfer of immediately available funds, the amount of such error with no
interest thereon.

                                      -40-
<PAGE>

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

            Section 3.01 Representations and Warranties of the Depositor.

            The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date, as of each
Transfer Date and as of each date on which Loans are sold to the Depositor:

            (a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization and
has, and had at all relevant times, full power to own its property, to carry on
its business as currently conducted, to enter into and perform its obligations
under each Basic Document to which it is a party;

            (b) The execution and delivery by the Depositor of each Basic
Document to which the Depositor is a party and its performance of and compliance
with all of the terms thereof will not violate the Depositor's organizational
documents or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;

            (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by the
other party or parties thereto, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
thereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

            (d) The Depositor is not in violation of, and the execution and
delivery by the Depositor of each Basic Document to which the Depositor is a
party and its performance and compliance with the terms of each Basic Document
to which the Depositor is a party will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or any of its properties or materially and adversely
affect the performance of any of its duties hereunder;

            (e) There are no actions or proceedings against, or investigations
of, the Depositor currently pending with regard to which the Depositor has
received service of process and no action or proceeding against, or
investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or other

                                      -41-
<PAGE>

tribunal that (A) if determined adversely to the Depositor, would prohibit its
entering into any of the Basic Documents to which it is a party or render the
Securities invalid, (B) seek to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by any of the Basic
Documents to which it is a party or (C) if determined adversely to the
Depositor, would prohibit or materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or enforceability of,
any of the Basic Documents to which it is a party or the Securities;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of the
Basic Documents to which the Depositor is a party or the Securities, or for the
consummation of the transactions contemplated by any of the Basic Documents to
which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;

            (g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of any of the Basic Documents to which it is a party or the assumption
of any of its obligations thereunder; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Depositor;

            (h) The Depositor did not transfer the Loans sold thereon by the
Depositor to the Trust with any intent to hinder, delay or defraud any of its
creditors; nor will the Depositor be rendered insolvent as a result of such
sale;

            (i) The Depositor had good title to, and was the sole owner of, each
Loan sold thereon by the Depositor free and clear of any lien other than any
such lien released simultaneously with the sale contemplated herein, and,
immediately upon each transfer and assignment herein contemplated, the Depositor
will have delivered to the Trust good title to, and the Trust will be the sole
owner of, each Loan transferred by the Depositor thereon free and clear of any
lien;

            (j) The Depositor acquired title to each of the Loans sold thereon
by the Depositor in good faith, without notice of any adverse claim;

            (k) None of the Basic Documents to which the Depositor is a party,
nor any Officer's Certificate, statement, report or other document prepared by
the Depositor and furnished or to be furnished by it pursuant to any of the
Basic Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;

            (l) The Depositor is not required to be registered as an "investment
company," under the Investment Company Act of 1940, as amended;

            (m) The transfer, assignment and conveyance of the Loans by the
Depositor thereon pursuant to this Agreement is not subject to the bulk transfer
laws or any similar statutory provisions in effect in any applicable
jurisdiction;

                                      -42-
<PAGE>

            (n) The Depositor's principal place of business and chief executive
offices are located at Irvine, California or at such other address as shall be
designated by such party in a written notice to the other parties hereto;

            (o) The Depositor covenants that during the continuance of this
Agreement it will comply in all respects with the provisions of its
organizational documents in effect from time to time; and

            (p) The representations and warranties, set forth in (h), (i), (j)
and (m) above were true and correct (with respect to the applicable QSPE
Affiliate) with respect to each Loan transferred to the Trust by any QSPE
Affiliate at the time such Loan was transferred to a QSPE Affiliate.

            Section 3.02 Representations and Warranties of the Loan Originator.

            The Loan Originator hereby represents and warrants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:

            (a) The Loan Originator is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Mortgaged Property related to a Loan
sold by it is located and (ii) is in compliance with the laws of any such
jurisdiction, in both cases, to the extent necessary to ensure the
enforceability of such Loans in accordance with the terms thereof and had at all
relevant times, full corporate power to originate such Loans, to own its
property, to carry on its business as currently conducted and to enter into and
perform its' obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Loan Originator's articles of organization or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any contract, agreement or other instrument to which the Loan
Originator is a party or which may be applicable to the Loan Originator or any
of its assets;

            (c) The Loan Originator has the full power and authority to enter
into and consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of the Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

            (d) The Loan Originator is not in violation of, and the execution
and delivery of each Basic Document to which it is a party by the Loan
Originator and its performance and

                                      -43-
<PAGE>

compliance with the terms of each Basic Document to which it is a party will not
constitute a violation with respect to, any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental agency
having jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Loan Originator or its
properties or materially and adversely affect the performance of its duties
under any Basic Document to which it is a party;

            (e) There are no actions or proceedings against, or investigations
of, the Loan Originator currently pending with regard to which the Loan
Originator has received service of process and no action or proceeding against,
or investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Securities invalid, (B) seek to prevent the issuance of the
Securities or the consummation of any of the transactions contemplated by any
Basic Document to which it is a party or (C) if determined adversely to the Loan
Originator, would prohibit or materially and adversely affect the sale of the
Loans to the Depositor, the performance by the Loan Originator of its
obligations under, or the validity or enforceability of, any Basic Document to
which it is a party or the Securities;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the issuance of the
Securities, (3) the sale and contribution of the Loans, or (4) the consummation
of the transactions required of it by any Basic Document to which it is a party,
except such as shall have been obtained before such date;

            (g) Immediately prior to the sale of any Loan to the Depositor, the
Loan Originator had good title to the Loans sold by it on such date Without
notice of any adverse claim;

            (h) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Loan Originator to the
Initial Noteholder in connection with the negotiation, preparation or delivery
of the Basic Documents to which it is a party or delivered pursuant thereto,
when taken as a whole, do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the Loan
Originator to the Initial Noteholder in connection with the Basic Documents to
which it is a party and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified.

            (i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a

                                      -44-
<PAGE>

party; no petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Loan Originator prior to the date hereof;

            (j) The Loan Originator has transferred the Loans transferred by it
on or prior to such Transfer Date without any intent to hinder, delay or defraud
any of its creditors;

            (k) The Loan Originator has received fair consideration and
reasonably equivalent value in exchange for the Loans sold by it on such
Transfer Date to the Depositor;

            (l) The Loan Originator has not dealt with any broker or agent or
other Person who might be entitled to a fee, commission or compensation in
connection with the transaction contemplated by this Agreement; and

            (m) The Loan Originator's principal place of business and chief
executive offices are located at Irvine, California or at such other address as
shall be designated by such party in a written notice to the other parties
hereto.

            It is understood and agreed that the representations and warranties
set forth in this Section 3.02 shall survive delivery of the respective
Custodial Loan Files to the Custodian (as the agent of the Indenture Trustee)
and shall inure to the benefit of the Securityholders, the Depositor, the
Servicer, the Indenture Trustee, the Owner Trustee and the Issuer. Upon
discovery by the Loan Originator, the Depositor, the Servicer, the Indenture
Trustee or the Trust of a breach of any of the foregoing representations and
warranties that materially and adversely affects the value of any Loan or the
interests of the Securityholders in any Loan or in the Securities, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties. The
obligations of the Loan Originator set forth in Sections 2.05 and 3.06 hereof to
cure any breach or to substitute for or repurchase an affected Loan shall
constitute the sole remedies available hereunder to the Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Trust respecting a breach
of the representations and warranties contained in this Section 3.02. The fact
that the Initial Noteholder has conducted or has failed to conduct any partial
or complete due diligence investigation of the Loan Files shall not affect the
Securityholders, rights to demand repurchase or substitution as provided under
this Agreement.

            Section 3.03 Representations, Warranties and Covenants of the
Servicer.

            The Servicer hereby represents and warrants to and covenants with
the other parties hereto and the Securityholders that as of the Closing Date and
as of each Transfer Date:

            (a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and (i) is duly
qualified, in good standing and licensed to carry on its business in each state
where any Mortgaged Property is located, and (ii) is in compliance with the laws
of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform
its duties under each Basic Document to which it is a party and had at all
relevant times, full corporate power to own its property, to carry on its
business as currently conducted, to service the Loans and to enter into and
perform its obligations under each Basic Document to which it is a party;

                                      -45-
<PAGE>

      (b) The execution and delivery by the Servicer of each Basic Document to
which it is a party and its performance of and compliance with the terms thereof
will not violate the Servicer's articles of incorporation or by-laws or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in the breach or acceleration of
any material contract, agreement or other instrument to which the Servicer is a
party or which are s applicable to the Servicer or any of its assets;

      (c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a. party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);

      (d) The Servicer is not in violation of, and the execution and delivery of
each Basic Document to which it is a party by the Servicer and its performance
and compliance with the terms of each Basic Document to which it is a party will
not constitute a violation with respect to, any order or decree of any court or
any order or regulation of any federal, state, municipal or governmental agency
having jurisdiction, which violation would materially and adversely affect the
condition (financial or otherwise) or operations of the Servicer or materially
and adversely affect the performance of its duties under any Basic Document to
which it is a party;

      (e) There are no actions or proceedings against, or investigations of, the
Servicer currently pending with regard to which the Servicer has received
service of process and no action or proceeding against, or investigation of, the
Servicer is, to the knowledge of the Servicer, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely to the Servicer, would prohibit its entering into any Basic Document
to which it is a party, (B) seek to prevent the consummation of any of the
transactions contemplated by any Basic Document to which it is a party or (C) if
determined adversely to the Servicer, would prohibit or materially and adversely
affect the performance by the Servicer of its obligations under, or the validity
or enforceability of, any Basic Document to which it is a party or the
Securities;

      (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Securities, or for the consummation of
the transactions contemplated by any Basic Document to which it is a party,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;

      (g) The information, reports, financial statements, exhibits and schedules
famished in writing by or on behalf of the Servicer to the Initial Noteholder in
connection with

                                      -46-
<PAGE>

the negotiation, preparation or delivery of the Basic Documents to which it is a
party or delivered pursuant thereto, when taken as a whole, do not contain any
untrue statement of material fact or omit. to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date
hereof by or on behalf of the Servicer to the Initial Noteholder in connection
with the Basic Documents to which it is a party and the transactions
contemplated thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified.

      (h) The Servicer is solvent and will not be rendered insolvent as a result
of the performance of its obligations pursuant to under the Basic Documents to
which it is a party;

      (i) The Servicer acknowledges and agrees that the Servicing Compensation
represents reasonable compensation for the performance of its services hereunder
and that the entire Servicing Compensation shall be treated by the Servicer, for
accounting purposes, as compensation for the servicing and administration of the
Loans pursuant to this Agreement; and

      (j) The Servicer is an Eligible Servicer and covenants to remain an
Eligible Servicer or, if not an Eligible Servicer, each Subservicer is an
Eligible Servicer and the Servicer covenants to cause each Subservicer to be an
Eligible Servicer.

      It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Indenture Trustee or the Custodian on its
behalf and shall inure to the benefit of the Depositor, the Securityholders, the
Indenture Trustee and the Issuer. Upon discovery by the Loan Originator, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or the Issuer
of a breach of any of the foregoing representations, warranties and covenants
that materially and adversely affects the value of any Loans or the interests of
the Securityholders therein, the party discovering such breach shall give prompt
written notice (but in no event later than two Business Days following such
discovery) to the other parties. The fact that the Initial Noteholder has
conducted or has failed to conduct any partial or complete due diligence
investigation shall not affect the Securityholders, rights to exercise their
remedies as provided under this Agreement.

      Section 3.04 Reserved.

      Section 3.05 Representations and Warranties Regarding Loans.

      The Loan Originator makes each of the representations and warranties set
forth on Exhibit E hereto with respect to each Loan, provided, however, that
with respect to each Loan transferred to the Issuer by a QSPE Affiliate, to the
extent that the Loan Originator has at the time of such transfer actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator shall
notify the Initial Noteholder of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty. In addition, the Loan Originator represents and warrants with respect
to each Loan sold by a QSPE Affiliate that the Loan Originator has not been
required to pay any amount to or on behalf of such QSPE Affiliate that lowered
the recourse to the Loan Originator available to such QSPE Affiliate below the
maximum recourse

                                      -47-
<PAGE>

to the Loan Originator available to such QSPE Affiliate under the terms of any
loan purchase agreement providing for recourse by that QSPE Affiliate to the
Loan Originator.

      Section 3.06 Purchase and Substitution.

      (a) It is understood and agreed that the representations and warranties
set forth in Exhibit E hereto shall survive the conveyance of the Loans to the
Indenture Trustee. on behalf of the Issuer, and the delivery of the Securities
to the Securityholders. Upon discovery by the Depositor, the Servicer, the Loan
Originator, the Custodian, the Issuer, the Indenture Trustee or any
Securityholder of a breach of any of such representations and warranties or the
representations and warranties of the Loan Originator set forth in Section 3.02
which materially and adversely affects the value or enforceability of any Loan
or the interests of the Securityholders in any Asset (notwithstanding that such
representation and warranty was made to the Loan Originator's best knowledge) or
which, as a result of the attributes of the aggregate Loan Pool, constitutes a
breach of the representations and warranties set forth in Exhibit E, the party
discovering such breach shall give prompt written notice to the others. The Loan
Originator shall within 5 Business Days of the earlier of the Loan Originator's
discovery or the Loan Originator's receiving notice of any breach of a
representation or warranty, promptly cure such breach in all material respects.
If within 5 Business Days after the earlier of the Loan Originator's discovery
of such breach or the Loan Originator's receiving notice thereof such breach has
not been remedied by the Loan Originator and such breach materially and
adversely affects the interests of the Securityholders in the related Loan (an
"Unqualified Loan"), the Loan Originator shall promptly upon receipt of written
instructions from the Majority Noteholders either (i) remove such Unqualified
Loan from the Trust (in which case it shall become a Deleted Loan) and
substitute one or more Qualified Substitute Loans in the manner and subject to
the conditions set forth in this Section 3.06 or (ii) purchase such Unqualified
Loan at a purchase price equal to the Repurchase Price with respect to such
Unqualified Loan by depositing or causing to be deposited such Repurchase Price
in the Collection Account.

      Any substitution of Loans pursuant to this Section 3.06(a) shall be
accompanied by payment by the Loan Originator of, the Substitution Adjustment,
if any, (x) if no Overcollateralization Shortfall exists on the date of such
substitution (after giving effect to such substitution), remitted to the
Noteholders in accordance with Section 5.01(c)(4)(i) or (Y) otherwise to be
deposited in the Collection Account pursuant to Section 5.01(b)(1) hereof.

      (b) As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Indenture Trustee and Initial Noteholder a
certification executed by a Responsible Officer of the Loan Originator to the
effect that the Substitution Adjustment, if any, has been (x) if no
Overcollateralization Shortfall exists on the date of such substitution (after
giving effect to such substitution), remitted to the Noteholders in accordance
with Section 5.01(c)(4)(i), or (y) otherwise deposited in the Collection
Account. As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Custodian the documents constituting the
Custodial Loan File for such Qualified Substitute Loan or Loans.

                                      -48-
<PAGE>

      The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan after the date of such
substitution. Monthly Payments received with respect to Qualified Substitute
Loans on or before the date of substitution will be retained by the Loan
Originator. The Trust will be entitled to all payments received on the Deleted
Loan on or before the date of substitution and the Loan Originator shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Loan. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and Initial Noteholder that such substitution has taken place and the
Servicer shall amend the Loan Schedule to reflect (i) the removal of such
Deleted Loan from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan. The Servicer shall promptly deliver to the Issuer,
the Loan Originator, the Indenture Trustee and Initial Noteholder, a copy of the
amended Loan Schedule. Upon such substitution, such Qualified Substitute Loan or
Loans shall be subject to the terms of this Agreement in all respects, and the
Loan Originator shall be deemed to have made with respect to such Qualified
Substitute Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Exhibit E hereto. On the date of
such substitution, the Loan Originator will (x) if no Overcollateralization
Shortfall exists as of the date of substitution (after giving effect to such
substitution), remit to the Noteholders as provided in Section 5.01(c)(4)(i) or
(y) otherwise deposit into the Collection Account, in each case an amount equal
to the related Substitution Adjustment, if any. In addition, on the date of such
substitution, the Servicer shall cause the Indenture Trustee to release the
Deleted Loan from the lien of the Indenture and the Servicer will cause such
Qualified Substitute Loan to be pledged to the Indenture Trustee under the
Indenture as part of the Trust Estate.

      (c) With respect to all Unqualified Loans or other Loans repurchased by
the Loan Originator pursuant to this Agreement, upon the deposit of the
Repurchase Price therefor into the Collection Account, (i) the Issuer shall
assign to the Loan Originator, without representation or warranty, all of the
Issuer's right, title and interest in and to such Unqualified Loan, which right,
title and interest were conveyed to the Issuer pursuant to Section 2.01 hereof
and (ii) the Indenture Trustee shall assign to the Loan Originator, without
recourse, representation or warranty, all the Indenture Trustee's right, title
and interest in and to such Unqualified Loans or Loans, which right, title and
interest were conveyed to the Indenture Trustee pursuant to Section 2.01 hereof
and the Indenture. The Issuer and the Indenture Trustee shall, at the expense of
the Loan Originator, take any actions as shall be reasonably requested by the
Loan Originator to effect the repurchase of any such Loans and to have the
Custodian return the Custodial Loan File of the deleted Loan to the Servicer.

      (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.06 to cure, purchase or substitute for a
Unqualified Loan constitute the sole remedies hereunder of the Depositor, the
Issuer, the Indenture Trustee, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 hereof and in Exhibit E hereto. Any cause of action against the Loan
Originator relating to or arising out of a defect in a Custodial Loan File or
against the Loan Originator relating to or arising out of a breach of any
representations and warranties made in Sections 3.02 hereof and in Exhibit E
hereto shall accrue as to any Loan upon (i) discovery of such defect or breach
by any party and notice thereof to the Loan Originator or notice thereof by the
Loan Originator to the Indenture Trustee, (ii) failure by the Loan Originator to
cure such defect or

                                      -49-
<PAGE>

breach or purchase or substitute such Loan as specified above, and (iii) demand
upon the Loan Originator, as applicable, by the Issuer or the Majority
Noteholders for all amounts payable in respect of such Loan.

      (e) Neither the Issuer nor the Indenture Trustee shall have any duty to
conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Loan pursuant to this Section or the eligibility of any Loan
for purposes of this Agreement.

      Section 3.07 Dispositions.

      (a) The Majority Noteholders may at any time in its sole discretion, and
from time to time, require that the Issuer redeem all or any portion of the Note
Principal Balance of the Notes by paying the Note Redemption Amount with respect
to the Note Principal Balance to be redeemed. In connection with any such
redemption, the Issuer shall effect Dispositions at the direction of the
Majority Noteholders in accordance with this Agreement, including in accordance
with this Section 3.07.

      (b) (i) In consideration of the consideration received from the Depositor
under the Loan Purchase and Contribution Agreement, the Loan Originator hereby
agrees and covenants that in connection with each Disposition it shall effect
the following:

            (A) make such representations and warranties concerning the Loans as
      of the "cut-off date" of the related Disposition to the Disposition
      Participants as may be necessary to effect the Disposition and such
      additional representations and warranties as may be necessary, in the
      reasonable opinion of any of the Disposition Participants, to effect such
      Disposition; provided, that, to the extent that the Loan Originator has at
      the time of the Disposition actual knowledge of any facts or circumstances
      that would render any of such representations and warranties materially
      false, the Loan Originator may notify the Disposition Participants of such
      facts or circumstances and, in such event, shall have no obligation to
      make such materially false representation and warranty;

            (B) supply such information, opinions of counsel, letters from law
      and/or accounting firms and other documentation and certificates regarding
      the origination of the Loans as any Disposition Participant shall
      reasonably request to effect a Disposition and enter into such
      indemnification agreements customary for such transaction relating to or
      in connection with the Disposition as the Disposition Participants may
      reasonably require;

            (C) make itself available for and engage in good faith consultation
      with the Disposition Participants concerning information to be contained
      in any document, agreement, private placement memorandum, or filing with
      the Securities and Exchange Commission relating to the Loan Originator or
      the Loans in connection with a Disposition and shall use reasonable
      efforts to compile any information and prepare any reports and
      certificates, into a form, whether written or electronic, suitable for
      inclusion in such documentation;

                                      -50-
<PAGE>

            (D) to implement the foregoing and to otherwise effect a
      Disposition, enter into, or arrange for its Affiliates to enter into
      insurance and indemnity agreements, underwriting or placement agreements,
      servicing agreements, purchase agreements and any other documentation
      which may reasonably be required of or reasonably deemed appropriate by
      the Disposition Participants in order to effect a Disposition; and

            (E) take such further actions as may be reasonably necessary to
      effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan Originator
shall have no liability for the Loans arising from or relating to the ongoing
ability of the related Borrowers to pay under the Loans; (b) none of the
indemnities hereunder shall constitute an unconditional guarantee by the Loan
Originator of collectibility of the Loans; (c) the Loan Originator shall have no
obligation with respect to the financial inability of any Borrower to pay
principal, interest or other amount owing by such Borrower under a Loan; and (d)
the Loan Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that to the
extent an Affiliate of the Initial Noteholder acts as "depositor" or performs a
similar function in a Securitization, additional indemnities and informational
representations and warranties are provided which are consistent with those in
the Basic Documents and may upon request of the Loan Originator be set forth in
a separate agreement between an Affiliate of the Initial Noteholder and the Loan
Originator.

      (ii) In the event of any Disposition to the Loan Originator or any of its
Affiliates (except in connection with a Securitization or a Disposition to a
QSPE Affiliate), the purchase price paid by the Loan Originator or any such
Affiliate shall be the "fair market value" of the Loans subject to such
Disposition (as determined by the Market Value Agent based upon recent sales of
comparable loans or such other objective criteria as may be approved for
determining "fair market value" by a "Big Five" national accounting firm).

      (iii) As long as no Event of Default or Default shall have occurred and be
continuing under this Agreement or the Indenture, the Servicer may continue to
service the Loans included in any Disposition subject to any applicable
"term-to-term" servicing provisions in Section 9.01(c) and subject to any
required amendments to the related servicing provisions as may be necessary to
effect the related Disposition including but not limited to the obligation to
make recoverable principal and interest advances on the Loans.

      After the termination of the Revolving Period, the Loan Originator, the
Issuer and the Depositor shall use commercially reasonable efforts to effect a
Disposition at the direction of the Market Value Agent.

      (c) The Issuer shall effect Dispositions at the direction of the Majority
Noteholders in accordance with the terms of this Agreement and the Basic
Documents. In connection therewith, the Trust agrees to assist the Loan
Originator in such Dispositions and accordingly it shall, at the request and
direction of the Majority Noteholders:

                                      -51-
<PAGE>

      (i) transfer, deliver and sell all or a portion of the Loans, as of the
"cut-off dates" of the related Dispositions, to such Disposition Participants as
may be necessary to effect the Dispositions; provided, that any such sale shall
be for "fair market value," as determined by the Market Value Agent in its
reasonable discretion;

      (ii) deposit the cash Disposition Proceeds into the Distribution Account
pursuant to Section 5.01(c)(2)(D);

      (iii) to the extent that a Securitization creates any Retained Securities,
to accept such Retained Securities as a part of the Disposition Proceeds in
accordance with the terms of this Agreement; and

      (iv) take such further actions, including executing and delivering
documents, certificates and agreements, as may be reasonably necessary to effect
such Dispositions.

      (d) The Servicer hereby covenants that it will take such actions as may be
reasonably necessary to effect Dispositions as the Disposition Participants may
request and direct, including without limitation providing the Loan Originator
such information as may be required to make representations and warranties
required hereunder, and covenants that it will make such representations and
warranties regarding its servicing of the Loans hereunder as of the Cut-off Date
of the related Disposition as reasonably required by the Disposition
Participants.

      (e) [reserved]

      (f) The Majority Noteholders may effect Whole Loan Sales upon written
notice to the Servicer of its intent to cause the Issuer to effect a Whole Loan
Sale at least 5 Business Days in advance thereof. The Disposition Agent shall
serve as agent for Whole Loan Sales and will receive a reasonable fee for such
services provided that no such fee shall be payable if (i) the Loan Originator
or its Affiliates purchase such Loans, and (ii) no Event of Default or Default
shall have occurred. The Loan Originator or its Affiliates may concurrently bid
to purchase Loans in a Whole Loan Sale; provided, however, that neither the Loan
Originator nor any such Affiliates shall pay a price in excess of the fair
market value thereof as reasonably determined by the Market Value Agent. In the
event that the Loan Originator does not bid in any such Whole Loan Sale, it
shall have a right of first refusal to purchase the Loans offered for sale at
the price offered by the highest bidder. The Disposition Agent shall conduct any
Whole Loan Sale subject to the Loan Originator's right of first refusal and
shall promptly notify the Loan Originator of the amount of the highest bid. The
Loan Originator shall have five (5) Business Days following its receipt of such
notice to exercise its right of first refusal by notifying the Disposition Agent
in writing.

      (g) Except as otherwise expressly set forth under this Section 3.07, the
parties' rights and obligations under this Section 3.07 shall continue
notwithstanding the occurrence of an Event of Default.

      (h) The Disposition Participants (and the Majority Noteholders to the
extent directing the Disposition Participants) shall be independent contractors
to the Issuer and shall have no fiduciary obligations to the Issuer or any of
its Affiliates. In that connection, the Disposition Participants shall not be
liable for any error of judgment made in good faith and shall

                                      -52-
<PAGE>

not be liable with respect to any action they take or omits to take in good
faith in the performance of their duties.

      Section 3.08 Servicer Put; Servicer Call.

      (a) Servicer Put. The Servicer shall (within 48 hours) purchase, upon the
written demand of the Majority Noteholders, any Put/Call Loan. Provided that the
Servicer may, upon receipt of such notice, elect to repurchase such Put/Call
Loan pursuant to (b) below, in which case such repurchase shall be deemed a
Servicer Call.

      (b) Servicer Call. The Servicer may repurchase any Put/Call Loan at any
time. Such Servicer Calls shall be solely at the option of the Servicer. Prior
to exercising a Servicer Call, the Servicer shall deliver written notice to the
Majority Noteholders and the Indenture Trustee which notice shall identify each
Loan to be purchased and the Repurchase Price therefor; provided, however, that
the Servicer may irrevocably waive its right to repurchase any Put/Call Loan as
soon as reasonably practicable following its receipt of notice of the occurrence
of any event or events giving rise to such Loan being a Put/Call Loan.

      (c) In connection with each Servicer Put, the Servicer shall remit for
deposit into the Collection Account, the Repurchase Price for the Loans to be
repurchased. In connection with each Servicer Call, the Servicer shall deposit
into the Collection Account the Repurchase Price for the Loans to be purchased.
The aggregate Repurchase Price of all Loans transferred pursuant to Section
3.08(a) shall in no event exceed the Unfunded Transfer Obligation at the time of
any Servicer Put.

      Section 3.09 Modification of Underwriting Guidelines.

      The Loan Originator shall give the Initial Noteholder prompt written
notification of any modification or change to the Underwriting Guidelines, If
the Noteholder objects in writing to any modification or change to the
Underwriting Guidelines within 15 days after receipt of such notice, no Loans
may be conveyed to the Issuer pursuant to this Agreement unless such Loans have
been originated pursuant to the Underwriting Guidelines without giving effect to
such modification or change. Notwithstanding anything contained in this
Agreement to the contrary, any Loan conveyed to the Issuer pursuant to this
Agreement pursuant to a modification or change to the Underwriting Guidelines
that has been rejected by the Initial Noteholder or which the Initial Noteholder
did not receive notice of, such Loan shall be deemed an Unqualified Loan and be
repurchased or substituted for in accordance with Section 3.06.

                                   ARTICLE IV

             ADMINISTRATION AND SERVICING OF THE LOANS

      Section 4.01 Servicer's Servicing Obligations.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with the terms and provisions set forth in
the Servicing Addendum, which Servicing Addendum is incorporated herein by
reference.

                                      -53-
<PAGE>

                                    ARTICLE V

              ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

      Section 5.01 Collection Account and Distribution Account.

      (a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Noteholders, shall cause to be established and maintained one or more
Collection Accounts (collectively, the "Collection Account"), which shall be
separate Eligible Accounts entitled "Option One Owner Trust 2001-2 Collection
Account, Wells Fargo Bank Minnesota, National Association, as Indenture Trustee,
for the benefit of the Option One Owner Trust 2001-2 Mortgage-Backed Notes." The
Collection Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Collection Account shall be invested in accordance with Section 5.03
hereof. Net investment earnings shall not be considered part of funds available
in the Collection Account.

      (2) Establishment of Distribution Account. The Servicer, for the benefit
of the Noteholders, shall cause to be established and maintained, one or more
Distribution Accounts (collectively, the "Distribution Account"), which shall be
separate Eligible Accounts, entitled "Option One Owner Trust 2001-2 Distribution
Account, Wells Fargo Bank Minnesota, National Association, as Indenture Trustee,
for the benefit of the Option One Owner Trust 2001-2 Mortgage-Backed Notes." The
Distribution Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Distribution Account shall be invested in accordance with Section 5.03
hereof. The Servicer may, at its option, maintain one account to serve as both
the Distribution Account and the Collection Account, in which case, the account
shall be entitled "Option One Owner Trust 2001-2 Collection/Distribution
Account, Wells Fargo Bank Minnesota, National Association, as Indenture Trustee,
for the benefit of the Option One Owner Trust 2001-2 Mortgage-Backed Notes." If
the Servicer makes such an election, all references herein or in any other Basic
Document to either the Collection Account or the Distribution Account shall mean
the Collection Account/Distribution Account described in the preceding sentence.

      (3) The Servicer will inform the Indenture Trustee of the location of any
accounts held in the Indenture Trustee's name, including any location to which
an account is transferred.

      (b) (1) Deposits to Collection Account. The Servicer shall deposit or
cause to be deposited (without duplication):

      (i) all payments on or in respect of each Loan collected on or after the
related Transfer Cut-off Date or with respect to each Loan purchased from a QSPE
Affiliate, all such payments allocable to such Loan on or after the related
Transfer Date (net, in each case, of any Servicing Compensation retained
therefrom) within two (2) Business Days after receipt thereof;

      (ii) all Net Liquidation Proceeds within two (2) Business Days after
receipt thereof;

                                      -54-
<PAGE>

      (iii) all Mortgage Insurance Proceeds within two (2) Business Days after
receipt thereof;

      (iv) all Released Mortgaged Property Proceeds within two (2) Business Days
after receipt thereof;

      (v) any amounts payable in connection with the repurchase of any Loan and
the amount of any Substitution Adjustment pursuant to Sections 2.05 and 3.06
hereof concurrently with payment thereof;

      (vi) any Repurchase Price payable in connection with a Servicer Call
pursuant to Section 3.08 hereof concurrently with payment thereof;

      (vii) the deposit of the Termination Price under Section 10.02 hereof
concurrently with payment thereof,

      (viii) [reserved];

      (ix) [reserved];

      (x) any payments received under Hedging Instruments or the return of
amounts by the Hedging Counterparty pledged pursuant to prior Hedge Funding
Requirements in accordance with the last sentence of this Section 5.01(b)(1);
and

      (xi) any Repurchase Price payable in connection with a Servicer Put
remitted by the Servicer pursuant to Section 3.08.

      Except as otherwise expressly provided in Section 5.01(c)(4)(i), the
Servicer agrees that it will cause the Loan Originator, Borrower or other
appropriate Person paying such amounts, as the case may be, to remit directly to
the Servicer for deposit into the Collection Account all amounts referenced in
clauses (i) through (xi) to the extent such amounts are in excess of a Monthly
Payment on the related Loan. To the extent the Servicer receives any such
amounts, it will deposit them into the Collection Account on the same Business
Day as receipt thereof.

      (c) Withdrawals From Collection Account; Deposits to Distribution Account.

      (1) Withdrawals From Collection Account -- Reimbursement Items. The Paying
Agent shall periodically but in any event on each Determination Date, make the
following withdrawals from the Collection Account prior to any other
withdrawals, in no particular order of priority:

      (i) to withdraw any amount not required to be deposited in the Collection
Account or deposited therein in error, including Servicing Compensation;

      (ii) to withdraw the Servicing Advance Reimbursement Amount; and

                                      -55-
<PAGE>

      (iii) to clear and terminate the Collection Account in connection with the
termination of this Agreement.

      (2) Deposits to Distribution Account - Payment Dates.

            (A) On the Business Day prior to each Payment Date, the Paying Agent
      shall deposit into the Distribution Account such amounts as are required
      from the Transfer Obligation Account pursuant to Sections 5.05(e),
      5.05(f), 5.05(g) and 5.05(h).

            (B) After making all withdrawals specified in Section 5.01(c)(1)
      above, on each Remittance Date, the Paying Agent (based on information
      provided by the Servicer for such Payment Date), shall withdraw the
      Monthly Remittance Amount (or, with respect to an additional Payment Date
      pursuant to Section 5.01(c)(4)(ii), all amounts on deposit in the
      Collection Account on such date up to the amount necessary to make the
      payments due on the related Payment Date in accordance with Section
      5.01(c)(3)) from the Collection Account not later than 5:00 P.M., New York
      City time and deposit such amount into the Distribution Account.

            (C) On each Payment Date, the Servicer shall cause to be deposited
      in the Distribution Account all payments on the Advance Note made on or
      before such Payment Date and not previously distributed pursuant to
      Section 5.01(c)(3).

            (D) The Servicer shall deposit or cause to be deposited in the
      Distribution Account any cash Disposition Proceeds pursuant to Section
      3.07. To the extent the Servicer receives such amounts, it will deposit
      them into the Distribution Account on the same Business Day as receipt
      thereof

      (3) Withdrawals From Distribution Account -- Payment Dates. On each
Payment Date, to the extent funds are available in the Distribution Account, the
Paying Agent (based on the information provided by the Servicer contained in the
Servicer's Remittance Report for such Payment Date) shall make withdrawals
therefrom for application in the following order of priority:

      (i) to distribute on such Payment Date the following amounts in the
following order: (a) to the Indenture Trustee, an amount equal to the Indenture
Trustee Fee and all unpaid Indenture Trustee Fees from prior Payment Dates and
all amounts owing to the Indenture Trustee pursuant to Section 6.07 of the
Indenture and not paid by the Servicer or the Depositor up to an amount not to
exceed $25,000 per annum, (b) to the Custodian, an amount equal to the Custodian
Fee and all unpaid Custodian Fees from prior Payment Dates, (c) to the Servicer,
(x) an amount equal to the Servicing Compensation and all unpaid Servicing
Compensation from prior Payment Dates (to the extent not retained from
collections or remitted to the Servicer pursuant to Section 5.01(c)) and (y) all
Nonrecoverable Servicing Advances not previously reimbursed and (d) to the
Servicer, in trust for the Owner Trustee, an amount equal to the Owner Trustee
Fee and all unpaid Owner Trustee Fees from prior Payment Dates;

                                      -56-
<PAGE>

      (ii) to distribute on such Payment Date, the Hedge Funding Requirement to
the appropriate Hedging Counterparties; provided, that only cash on or in
respect of fixed rate Loans (including cash Disposition Proceeds received
therefrom) and amounts deposited in the Distribution Account pursuant to Section
5.05(g) shall be distributed for such purpose and; provided, further, that
amounts distributed pursuant to clause (i) above to the extent not attributable
to a specific Loan shall be deemed paid from fixed rate Loans, pro rata based on
their aggregate Principal Balances relative to the Pool Principal Balance on
such Payment Date;

      (iii) to the holders of the Notes pro rata, the sum of the Unfunded Fee
Amount for such Payment Date, the Interest Payment Amount for such Payment Date
and the Interest Carry-Forward Amount for the preceding Payment Date;

      (iv) to the holders of the Notes pro rata, the Overcollateralization
Shortfall for such Payment Date; provided, however, that if (a) a Rapid
Amortization Trigger shall have occurred and not been Deemed Cured or (b) an
Event of Default under the Indenture or Default shall have occurred, the holders
of the Notes shall receive, in respect of principal, all remaining amounts on
deposit in the Distribution Account;

      (v) to the appropriate Person, amounts in respect of Issuer/Depositor
Indemnities (as defined in the Trust Agreement) and Due Diligence Fees until
such amounts are paid in full;

      (vi) to the Transfer Obligation Account, all remaining amounts until the
balance therein equals the Transfer Obligation Target Amount;

      (vii) to the Indenture Trustee all amounts owing to the Indenture Trustee
pursuant to Section 6.07 of the Indenture and not paid pursuant to clause (i)
above; and

      (viii) to the holders of the Trust Certificates, in accordance with
Section 5.2(6) of the Trust Agreement, all amounts remaining therein.

      (4) (i) If the Loan Originator or the Servicer, as applicable,
repurchases, purchases or substitutes a Loan pursuant to Section 2.05, 3.06,
3.08(a), 3.08(b) or 3.08(c), then the Noteholders and the Issuer shall deem such
date to be an additional Payment Date and the Issuer shall provide written
notice to the Indenture Trustee and the Paying Agent of such additional Payment
Date at least one Business Day prior to such Payment Date. On such additional
Payment Date, the Loan Originator or the Servicer, in satisfaction of its
obligations under 2.05, 3.06, 3.08(a) 3.08(b) or 3.08(c) and in satisfaction of
the obligations of the Issuer and the Paying Agent to distribute such amounts to
the Noteholders pursuant to Section 5.01(c), shall remit to the Noteholders, on
behalf of the Issuer and the Paying Agent, an amount equal to the Repurchase
Prices and any Substitution Adjustments (as applicable) to be paid by the Loan
Originator or the Servicer by 12:00 p.m. New York City time, as applicable,
under such Section, on such Payment Date, and the Note Principal Balance will be
reduced accordingly. Such amounts shall be deemed deposited into the Collection
Account and the Distribution Account, as applicable, and such amounts will be
deemed distributed pursuant to the terms of Section 5.01(c). Upon notice of an
additional Payment Date to the Paying Agent and the Indenture Trustee as
provided above, the Paying Agent shall provide the Loan Originator or the
Servicer

                                      -57-
<PAGE>

(as applicable) information necessary so that remittances to the Noteholders
pursuant to this clause (4)(i) may be made by the Loan Originator or the
Servicer, as applicable, in compliance with Section 5.02(a) hereof.

      (ii) To the extent that there is deposited in the Collection Account or
the Distribution Account any amounts referenced in Section 5.01(b)(1)(vii) and
5.01(c)(2)(D), the Majority Noteholders and the Issuer may agree, upon
reasonable written notice to the Paying Agent and the Indenture Trustee, to
additional Payment Dates. The Issuer and the Majority Noteholder shall give the
Paying Agent and the Indenture Trustee at least one (1) Business Day's written
notice prior to such additional Payment Date and such notice shall specify each
amount in Section 5.01(c) to be withdrawn from the Collection Account and
Distribution Account on such day.

      (iii) To the extent that there is deposited in the Distribution Account
any amounts referenced in Section 5.05(f), the Majority Noteholders may, in
their sole discretion, establish an additional Payment Date by written notice
delivered to the Paying Agent and the Indenture Trustee at least one Business
Day prior to such additional Payment Date. On such additional Payment Date, the
Paying Agent shall pay the sum of the Overcollateralization Shortfall to the
Noteholders in respect of principal on the Notes.

      Notwithstanding that the Notes have been paid in full, the Indenture
Trustee, the Paying Agent and the Servicer shall continue to maintain the
Distribution Account hereunder until this Agreement has been terminated.

      Section 5.02 Payments to Securityholders.

      (a) All distributions made on the Notes on each Payment Date or pursuant
to Section 5.04(b) of the Indenture will be made on a pro rata basis among the
Noteholders of record of the Notes on the next preceding Record Date based on
the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes having a Percentage Interest (as defined in the Indenture) of at
least 20% and shall have so notified the Paying Agent and the Indenture Trustee,
5 Business Days prior to the related Record Date and otherwise by check mailed
to the address of such Noteholder appearing in the Notes Register. The final
distribution on each Note will be made in like manner, but only upon presentment
and surrender of such Note at the location specified in the notice to
Noteholders of such final distribution.

      (b) All distributions made on the Trust Certificates on each Payment Date
or pursuant to Section 5.04(b) of the Indenture will be made in accordance with
the Percentage Interest among the holders of the Trust Certificates of record on
the next preceding Record Date based on their Percentage Interests (as defined
in the Trust Agreement) on the date of distribution, without preference or
priority of any kind, and, except as otherwise provided in the next succeeding
sentence, shall be made by wire transfer of immediately available funds to the
account of each such holder, if such holder shall own of record a Trust
Certificate in an original denomination aggregating at least 25% of the
Percentage Interests and shall have so notified the

                                      -58-
<PAGE>

Paying Agent and the Indenture Trustee 5 Business Days prior to the related
Record Date, and otherwise by check mailed to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Trust Certificate will be made in like manner, but only upon presentment
and surrender of such Trust Certificate at the location specified in the notice
to holders of the Trust Certificates of such final distribution. Any amount
distributed to the holders of the Trust Certificates on any Payment Date shall
not be subject to any claim or interest of the Noteholders. In the event that at
any time there shall be more than one Certificateholder, the Indenture Trustee
shall be entitled to reasonable additional compensation from the Servicer for
any increases in its obligations hereunder.

      Section 5.03 Trust Accounts; Trust Account Property.

      (a) Control of Trust Accounts. Each of the Trust Accounts established
hereunder has been pledged by the Issuer to the Indenture Trustee under the
Indenture and shall be subject to the lien of the Indenture. Amounts distributed
from each Trust Account in accordance with the terms of this Agreement shall be
released for the benefit of the Securityholders from the Trust Estate upon such
distribution thereunder or hereunder. The Indenture Trustee shall possess all
right, title and interest in and to all funds on deposit from time to time in
the Trust Accounts and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Trust Estate. If, at any time, any Trust Account ceases
to be an Eligible Account, the Indenture Trustee shall, within ten Business Days
(or such longer period, not to exceed 30 calendar days, with the prior written
consent of the Majority Noteholders) (i) establish a new Trust Account as an
Eligible Account, (ii) terminate the ineligible Trust Account, and (iii)
transfer any cash and investments from such ineligible Trust Account to such new
Trust Account.

      With respect to the Trust Accounts, the Issuer and the Indenture Trustee
agree, that each such Trust Account shall be subject to the sole and exclusive
dominion, custody and control of the Indenture Trustee for the benefit of the
Noteholders, and, except as may be consented to in writing by the Majority
Noteholders, the Indenture Trustee shall have sole signature and withdrawal
authority with respect thereto.

      The Servicer (unless it is also the Paying Agent) shall not be entitled to
make any withdrawals or payments from the Trust Accounts.

      (b) (1) Investment of Funds. Funds held in the Collection Account, the
Distribution Account and the Transfer Obligation Account may be invested (to the
extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Servicer prior to the occurrence of an
Event of Default and by the Majority Noteholders thereafter, in writing or
facsimile transmission confirmed in writing by the Servicer or Majority
Noteholders, as applicable. In the event the Indenture Trustee has not received
such written direction, such Funds shall be invested in any Permitted Investment
described in clause (i) of the definition of Permitted Investments. In any
case, funds in the Collection Account, the Distribution Account and the Transfer
Obligation Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, one
Business Day prior to the next Payment Date and shall not be sold or disposed

                                      -59-
<PAGE>

of prior to its maturity subject to Subsection (b)(2) of this Section. All
interest and any other investment earnings on amounts or investments held in the
Collection Account, the Distribution Account and the Transfer Obligation Account
shall be paid to the Servicer immediately upon receipt by the Indenture Trustee.
All Permitted Investments in which funds in the Collection Account, the
Distribution Account or the Transfer Obligation Account are invested must be
held by or registered in the name of "Wells Fargo Bank Minnesota, National
Association, as Indenture Trustee, in trust for the Option One Owner Trust
2001-2 Mortgage-Backed Notes."

      (2) Insufficiency and Losses in Trust Accounts. If any amounts are needed
for disbursement from the Collection Account, the Distribution Account or the
Transfer Obligation Account held by or on behalf of the Indenture Trustee and
sufficient uninvested funds are not available to make such disbursement, the
Indenture Trustee shall cause to be sold or otherwise converted to cash a
sufficient amount of the investments in the Collection Account, the Distribution
Account or the Transfer Obligation Account, as the case may be. The Indenture
Trustee shall not be liable for any investment loss or other charge resulting
therefrom, unless such loss or charge is caused by the failure of the Indenture
Trustee to perform in accordance with written directions provided pursuant to
this Section 5.03.

      If any losses are realized in connection with any investment in the
Collection Account, the Distribution Account or the Transfer Obligation Account
pursuant to this Agreement during a period in which the Servicer has the right
to direct investments pursuant to Section 5.03(b), then the Servicer shall
deposit the amount of such losses (to the extent not offset by income from other
investments in the Collection Account, the Distribution Account or the Transfer
Obligation Account, as the case may be) into the Collection Account, the
Distribution Account or the Transfer Obligation Account, as the case may be,
immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in the Collection Account, the Distribution
Account and the Transfer Obligation Account shall be taxed to the Issuer and for
federal and state income tax purposes the Issuer shall be deemed to be the owner
of the Collection Account, the Distribution Account and/or the Transfer
Obligation Account, as the case may be.

      (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.

      (d) With respect to the Trust Account Property, the Indenture Trustee
acknowledges and agrees that:

            (1) any Trust Account Property that is held in deposit accounts
      shall be held solely in the Eligible Accounts, subject to the last
      sentence of Subsection (a) of this Section 5.03; and each such Eligible
      Account shall be subject to the sole and exclusive dominion, custody and
      control of the Indenture Trustee; and, without limitation on the
      foregoing, the Indenture Trustee shall have sole signature authority with
      respect thereto;

            (2) any Trust Account Property that constitutes Physical Property
      shall be delivered to the Indenture Trustee in accordance with paragraphs
      (a) and (b) of

                                      -60-
<PAGE>

      the definition of "Delivery" in Section .1.01 hereof and shall be held,
      pending maturity or disposition, solely by the Indenture Trustee or a
      securities intermediary (as such term is defined in Section 8-102(a)(14)
      of the UCC) acting solely for the Indenture Trustee;

            (3) any Trust Account Property that is a book-entry security held
      through the Federal Reserve System pursuant to federal book-entry
      regulations shall be delivered in accordance with paragraph (c) of the
      definition of "Delivery" in Section 1.01 hereof and shall be maintained by
      the Indenture Trustee, pending maturity or disposition, through continued
      book-entry registration of such Trust Account Property as described in
      such paragraph; and

            (4) any Trust Account Property that is an "uncertificated security"
      under Article 8 of the UCC and that is not governed by clause (3) above
      shall be delivered to the Indenture Trustee in accordance with paragraph
      (d) of the definition of "Delivery" in Section 1.01 hereof and shall be
      maintained by the Indenture Trustee, pending maturity or disposition,
      through continued registration of the Indenture Trustee's (or its
      nominee's) ownership of such security.

      Section 5.04 Advance Account.

      (a) The Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained an Advance Account (the "Advance Account"), which
shall be a separate Eligible Account entitled "Option One Owner Trust 2001-2
Advance Account, Wells Fargo Bank Minnesota, National Association, as Indenture
Trustee, for the benefit of the Option One Owner Trust 2001-2 Mortgage-Backed
Notes." The Advance Account shall be maintained with a depository institution
and shall satisfy the requirements set forth in the definition of Eligible
Account. Funds in the Collection Account shall not be invested.

      (b) Deposits and Withdrawals. Amounts in respect of Additional Note
Principal Balances purchased on Transfer Dates shall be deposited in and
withdrawn from the Advance Account as provided in Sections 2.01(c) and 2.06
hereof and Section 3.01 of the Note Purchase Agreement. All amounts on deposit
in the Advance Account at any time shall be the property of the Initial
Noteholder and shall be held in escrow by the Indenture Trustee for application
in accordance with this Agreement.

      Section 5.05 Transfer Obligation Account.

      (a) The Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained in the name of the Indenture Trustee a Transfer
Obligation Account (the "Transfer Obligation Account"), which shall be a
separate Eligible Account and may be interest-bearing, entitled "Option One
Owner Trust 2001-2 Transfer Obligation Account, Wells Fargo Bank Minnesota,
National Association, as Indenture Trustee, for the benefit of the Option One
Owner Trust 2001-2 Mortgage-Backed Notes." The Indenture Trustee shall have no
monitoring or calculation obligation with respect to withdrawals from the
Transfer Obligation Account. Amounts in the Transfer Obligation Account shall be
invested in accordance with Section 5.03.

                                      -61-
<PAGE>

      (b) In accordance with Section 5.06, the Loan Originator shall deposit
into the Transfer Obligation Account any amounts as may be required thereby.

      (c) On each Payment Date, the Paying Agent will deposit in the Transfer
Obligation Account any amounts required to be deposited therein pursuant to
Section 5.01(c)(3)(vi).

      (d) On the date of each Disposition, the Paying Agent shall withdraw from
the Transfer Obligation Account such amount on deposit therein in respect of the
payment of Transfer Obligations as may be requested by the Disposition Agent in
writing to effect such Disposition.

      (e) On each Payment Date, the Paying Agent shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account and (y) the Interest Carry-Forward Amount as of such date.

      (f) If, with respect to any Business Day there exists an
Overcollateralization Shortfall, the Paying Agent, upon the written direction of
the Servicer or the Initial Noteholder shall withdraw from the Transfer
Obligation Account and deposit into the Distribution Account on such Business
Day the lesser of the amount then on deposit in the Transfer Obligation Account
and the amount of such Overcollateralization Shortfall as of such date.

      (g) If with respect to any Payment Date there shall exist a Hedge Funding
Requirement, the Paying Agent, upon the written direction of the Servicer or the
Initial Noteholder shall withdraw from the Transfer Obligation Account and
deposit into the Distribution Account on the Business Day prior to such Payment
Date the lesser of (x) the amount then on deposit in the Transfer Obligation
Account (after making all other required withdrawals therefrom with respect to
such Payment Date) and (y) the amount of such Hedge Funding Requirement as of
such date.

      (h) In the event of the occurrence of an Event of Default under the
Indenture, the Paying Agent shall withdraw all remaining funds from the Transfer
Obligation Account and apply such funds in satisfaction of the Notes as provided
in Section 5.04(b) of the Indenture.

      (i) (i) The Paying Agent shall return to the Loan Originator (as the Loan
Originator shall agree) all amounts on deposit in the Transfer Obligation
Account (after making all other withdrawals pursuant to this Section 5.05)
until the Majority Noteholders provide written notice to the Indenture Trustee
(with a copy to the Loan Originator and the Servicer) of the occurrence of a
default or event of default (however defined) under any Basic Document with
respect to the Issuer, the Depositor, the Loan Originator or any of their
Affiliates and (ii) upon the date of the termination of this Agreement pursuant
to Article X, the Paying Agent shall withdraw any remaining amounts from the
Transfer Obligation Account and remit all such amounts to the Loan Originator.

                                      -62-
<PAGE>

      Section 5.06 Transfer Obligation.

      (a) In consideration of the transactions contemplated by the Basic
Documents, the Loan Originator agrees and covenants with the Depositor that:

      (i) In connection with each Disposition it shall fund, or cause to be
funded, reserve funds, pay credit enhancer fees, pay, or cause to be paid,
underwriting fees, fund any difference between the cash Disposition Proceeds and
the aggregate Note Principal Balance at the time of such Disposition, and make,
or cause to be made; such other payments as may be, in the reasonable opinion
of the Disposition Agent, commercially reasonably necessary to effect
Dispositions, in each case to the extent that Disposition Proceeds are
insufficient to pay such amounts;

      (ii) In connection with Hedging Instruments, on the Business Day prior to
each Payment Date, it shall deliver to the Servicer for deposit into the
Transfer Obligation Account any Hedge Funding Requirement (to the extent amounts
available on the related Payment Date pursuant to Section 5.01 are insufficient
to make such payment), when as and if due to any Hedging Counterparty;

      (iii) If any Interest Carry-Forward Amount shall occur, it shall deposit
into the Transfer Obligation Account any such Interest Carry-Forward Amount on
or before the Business Day preceding such related Payment Date;

      (iv) If on any Business Day, there exists an Overcollateralization
Shortfall, upon the written direction of the Initial Noteholder, it shall, on
such Business Day deposit into the Transfer Obligation Account the full amount
of the Overcollateralization Shortfall as of such date, provided, that in the
event that notice of such Overcollateralization Shortfall is provided to the
Loan Originator after 3:00 p.m. New York City time, the Loan Originator shall
make such deposit on the following Business Day; and

      (v) Notwithstanding anything to the contrary herein, in the event of the
occurrence of an Event of Default under the Indenture, the Loan Originator shall
promptly deposit into the Transfer Obligation Account the entire amount of the
Unfunded Transfer Obligation;

provided, that notwithstanding anything to the contrary contained herein, the
Loan Originator's cumulative payments under or in respect of the Transfer
Obligations (after subtracting therefrom any amounts returned to the Loan
Originator pursuant to Section 5.05(i)(i)) together with the Servicer's
payments in respect of any Servicer Puts shall not in the aggregate exceed the
Unfunded Transfer Obligation.

      (b) The Loan Originator agrees that the Noteholders, as ultimate assignee
of the rights of the Depositor under this Agreement and the other Basic
Documents, may enforce the rights of the Depositor directly against the Loan
Originator.

                                      -63-
<PAGE>

                                   ARTICLE VI

              STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

      Section 6.01 Statements.

      (a) No later than 12 noon (New York City time) on each Remittance Date,
the Servicer shall deliver to the Indenture Trustee and the Initial Noteholder
by facsimile, the receipt and legibility of which shall be confirmed by
telephone, and with hard copy thereof to be delivered no later than one (1)
Business Day after such Remittance Date, the Servicer's Remittance Report,
setting forth the date of such Report (day, month and year), the name of the
Issuer (i.e., "Option One Owner Trust 2001-2"), and the date of this Agreement,
all in substantially the form set out in Exhibit B hereto. Furthermore, on each
Remittance Date, the Servicer shall deliver to the Indenture Trustee and the
Initial Noteholder a magnetic tape or computer disk providing, with respect to
each Loan in the Loan Pool as of the last day of the related Remittance Period
(i) if such Loan is an ARM, the current Loan Interest Rate ; (ii) the Principal
Balance with respect to such Loan ; (iii) the date of the last Monthly Payment
paid in full; and (iv) such other information as may be reasonably requested by
the Initial Noteholder and the Indenture Trustee. In addition, no later than
12:00 noon (New York City time) on the 15th day of each calendar month (or if
such day is not a Business Day, the preceding Business Day), the Custodian shall
prepare and provide to the Servicer and the Indenture Trustee by facsimile, the
Custodian Fee Notice for the Payment Date falling in such calendar month.

      (b) (i) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall prepare (or cause to be prepared) and provide to the
Indenture Trustee electronically or via fax, receipt confirmed by telephone, the
Initial Noteholder and each Noteholder, a statement (the "Payment Statement"),
stating each date and amount of a purchase of Additional Note Principal Balance
(day, month and year), the name of the Issuer (i.e.,"Option One Owner Trust
2001-2"), the date of this Agreement and the following information:

            (1) the aggregate amount of collections in respect of principal of
      the Loans received by the Servicer during the preceding Remittance Period;

            (2) the aggregate amount of collections in respect of interest on
      the Loans received by the Servicer during the preceding Remittance Period;

            (3) all Mortgage Insurance Proceeds received by the Servicer during
      the preceding Remittance Period and not required to be applied to
      restoration or repair of the related Mortgaged Property or returned to the
      Borrower under applicable law or pursuant to the terms of the applicable
      Mortgage Insurance Policy;

            (4) all Net Liquidation Proceeds deposited by the Servicer into the
      Collection Account during the preceding Remittance Period;

            (5) all Released Mortgaged Property Proceeds deposited by the
      Servicer into the Collection Account during the preceding Remittance
      Period;

                                      -64-
<PAGE>

            (6) the aggregate amount of all Servicing Advances made by the
      Servicer during the preceding Remittance Period;

            (7) the aggregate of all amounts deposited into the Distribution
      Account in respect of the repurchase of Unqualified Loans and the
      repurchase of Loans pursuant to Section 2.05 hereof during the preceding
      Remittance Period;

            (8) the aggregate Principal Balance of all Loans for which a
      Servicer Call was exercised during the preceding Remittance Period;

            (9) the aggregate Principal Balance of all Loans for which a
      Servicer Put was exercised during the preceding Remittance Period;

            (10) the aggregate amount of all payments received under Hedging
      Instruments during the preceding Remittance Period;

            (11) the aggregate amount of all withdrawals from the Distribution
      Account pursuant to Section 5.01(c)(1)(i) hereof during the preceding
      Remittance Period;

            (12) the aggregate amount of cash Disposition Proceeds received
      during the preceding Remittance Period;

            (13) withdrawals from the Collection Account in respect of the
      Servicing Advance Reimbursement Amount with respect to the related Payment
      Date;

            (14) [reserved];

            (15) the number and aggregate Principal Balance of all Loans that
      are (i) 30-59 days Delinquent, (ii) 60-89 days Delinquent, (iii) 90 or
      more days Delinquent as of the end of the related Remittance Period;

            (16) the aggregate amount of Liquidated Loan Losses incurred (i)
      during the preceding Remittance Period, and (ii) during the preceding
      three Remittance Periods;

            (17) the aggregate of the Principal Balances of all Loans in the
      Loan Pool as of the end of the related Remittance Period;

            (18) the aggregate amount of all deposits into the Distribution
      Account from the Transfer Obligation Account pursuant to Sections 5.05(e),
      5.05(f), 5.05(g), and 5.05(h) on the related Payment Date;

            (19) the aggregate amount of distributions in respect of Servicing
      Compensation to the Servicer, and unpaid Servicing Compensation from prior
      Payment Dates for the related Payment Date;

                                      -65-
<PAGE>

            (20) the aggregate amount of distributions in respect of Indenture
      Trustee Fees and unpaid Indenture Trustee Fees from prior Payment Dates
      for the related Payment Date;

            (21) the aggregate amount of distributions in respect of the
      Custodian Fee and unpaid Custodian Fees from prior Payment Dates for the
      related Payment Date;

            (22) the aggregate amount of distributions in respect of the Owner
      Trustee Fees and unpaid Owner Trustee Fees from prior Payment Dates and
      for the related Payment Date;

            (23) the Unfunded Transfer Obligation and Overcollateralization
      Shortfall on such Payment Date for the related Payment Date;

            (24) the aggregate amount of distributions to the Transfer
      Obligation Account for the related Payment Date;

            (25) the aggregate amount of distributions in respect of
      Trust/Depositor Indemnities for the related Payment Date;

            (26) the aggregate amount of distributions to the holders of the
      Trust Certificates for the related Payment Date;

            (27) the Note Principal Balance of the Notes as of the last day of
      the related Remittance Period (without taking into account any Additional
      Note Principal Balance between the last day of such Remittance Period and
      the related Payment Date) before and after giving effect to distributions
      made to the holders of the Notes for such Payment Date;

            (28) the Pool Principal Balance as of the end of the preceding
      Remittance Period; and

            (29) whether a Performance Trigger or a Rapid Amortization Trigger
      shall exist with respect to such Payment Date.

      Such Payment Statement shall also be provided on the Remittance Date to
the Initial Noteholder and Indenture Trustee in the form of a magnetic tape,
computer disk or other electronic form mutually agreed to by and between the
Initial Noteholder, the Indenture Trustee and the Servicer. The Indenture
Trustee shall have no duty to monitor the occurrence of a Performance Trigger,
Rapid Amortization Trigger or any events resulting in withdrawals from the
Transfer Obligation Account.

      (c) Within 45 days of the end of each financial quarter, the Loan
Originator shall prepare and deliver to the Initial Noteholder a quarterly
compliance certificate and board report in the form of Exhibit G attached
hereto.

                                      -66-
<PAGE>

      Section 6.02 Specification of Certain Tax Matters.

      The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient. Any
amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of this
Agreement. The Indenture Trustee shall have no responsibility for preparing or
filing any tax returns.

      Section 6.03 Valuation of Loans, Hedge Value and Retained Securities
Value, Market Value Agent.

      (a) The Initial Noteholder hereby irrevocably appoints, and the Issuer
hereby consents to the appointment of, the Market Value Agent as agent on behalf
of the Noteholders to determine the Market Value of each Loan, the Hedge Value
of each Hedging Instrument and the Retained Securities Value of all Retained
Securities.

      (b) Except as otherwise set forth in Section 3.07, the Market Value Agent
shall determine the Market Value of each Loan, for purposes of the Basic
Documents, in its sole judgment, exercised in good faith. In determining the
Market Value of each Loan, the Market Value Agent may consider any information
that it may deem relevant and shall base such determination primarily on the
lesser of its estimate of the projected proceeds from such Loan's inclusion in
(i) a Securitization (inclusive of the projected Retained Securities Value of
any Retained Securities to be issued in connection with such Securitization) and
(ii) a Whole Loan Sale, in each case net of such Loan's ratable share of all
costs and fees associated with such Disposition, including, without limitation,
any costs of issuance, sale, underwriting and funding reserve accounts. The
Market Value Agent's determination, in its sole judgment, of Market Value shall
be conclusive and binding upon the parties hereto, absent manifest error
(including without limitation, any error contemplated in Section 2.08).

      (c) On each Business Day the Market Value Agent shall determine in its
sole judgment, exercised in good faith, the Hedge Value of each Hedging
Instrument as of such Business Day. In making such determination the Market
Value Agent may rely exclusively on quotations provided by the Hedging
Counterparty, by leading dealers in instruments similar to such Hedging
Instrument, which leading dealers may include the Market Value Agent and its
Affiliates and such other sources of information as the Market Value Agent may
deem appropriate.

      (d) On each Business Day, the Market Value Agent shall determine in its
sole judgment, exercised in good faith, the Retained Securities Value of the
Retained Securities, if any, expected to be issued pursuant to such
Securitization as of the closing date of such Securitization. In making such
determination the Market Value Agent may rely exclusively on quotations provided
by leading dealers in instruments similar to such Retained Securities, which
leading dealers may include the Market Value Agent and its Affiliates and such
other sources of information as the Market Value Agent may deem appropriate.

                                      -67-
<PAGE>

                                   ARTICLE VII

                                     HEDGING

      Section 7.01 Hedging Instruments.

      (a) On each Transfer Date, the Trust shall enter into such Hedging
Instruments as the Market Value Agent, on behalf of the Majority Noteholders
shall reasonably determine are necessary, in order to hedge the interest rate
risk with respect to the Loans being purchased on such Transfer Date. The Market
Value Agent shall determine, in its sole discretion, whether any Hedging
Instrument conforms to the requirements of Section 7.01(b), (c) and (d).

      (b) Each Hedging Instrument shall expressly provide that in the event of a
Disposition or other removal of the Loan from the Trust, such portion of the
Hedging Instrument shall terminate as the Disposition Agent deems appropriate to
facilitate the hedging of the risks specified in Section 7.01(a). In the event
that the Hedging Instrument is not otherwise terminated, it shall contain
provisions that allow the position of the Trust to be assumed by an Affiliate of
the Trust upon the liquidation of the Trust. The terms of the assignment
documentation and the credit quality of the successor to the Trust shall be
subject to the Hedging Counterparty's approval.

      (c) Any Hedging Instrument that provides for any payment obligation on the
part of the Issuer must (i) be without recourse to the assets of the Issuer,
(ii) contain a non-petition covenant provision in the form of Section 11.13,
(iii) limit payment dates thereunder to Payment Dates and (iv) contain a
provision limiting any cash payments due on any day under such Hedging
Instrument solely to funds available therefor in the Collection Account on such
day pursuant to Section 5.01(c)(3)(ii) hereof and funds available therefor in
the Transfer Obligation Account.

      (d) Each Hedging Instrument must (i) provide for the direct payment of any
amounts thereunder to the Collection Account pursuant to Section 5.01(b)(1)(x),
(ii) contain an assignment of all of the Issuer's rights (but none of its
obligations) under such Hedging Instrument to the Indenture Trustee and shall
include an express consent to the Hedging Counterparty to such assignment, (iii)
provide that in the event of the occurrence of an Event of Default, such Hedging
Instrument shall terminate upon the direction of the Majority Noteholders, (iv)
prohibit the Hedging Counterparty from "setting-off or "netting" other
obligations of the Issuer or its Affiliates against such Hedging Counterparty's
payment obligations thereunder, (v) provide that the appropriate portion of the
Hedging Instrument will terminate upon the removal of the related Loans from the
Trust Estate and (vi) have economic terms that are fixed and not subject to
alteration after the date of assumption or execution.

      (e) If agreed to by the Majority Noteholders, the Issuer may pledge its
assets in order to secure its obligations in respect of Hedge Funding
Requirements, provided that such right shall be limited solely to Hedging
Instruments for which an Affiliate of the Initial Noteholder is a Hedging
Counterparty.

                                      -68-
<PAGE>

      (f) The aggregate notional amount of all Hedging Instruments shall not
exceed the Note Principal Balance as of the date on which each Hedging
Instrument is entered into by the Issuer and a Hedging Counterparty.

                                  ARTICLE VIII

                                  THE SERVICER

      Section 8.01 Indemnification, Third Party Claims.

      (a) The Servicer shall indemnify the Loan Originator, the Owner Trustee,
the Trust, the Depositor, the Indenture Trustee and the Noteholders, their
respective officers, directors, employees, agents and "control persons," as such
term is used under the Act and under the Securities Exchange Act of 1934 as
amended (each a "Servicer Indemnified Party") and hold harmless each of them
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and other costs and expenses
resulting from any claim, demand, defense or assertion based on or grounded
upon, or resulting from, a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Loans in
compliance with the terms of this Agreement except to the extent such loss
arises out of such Servicer Indemnified Party's gross negligence or willful
misconduct; provided, however, that if the Servicer is not liable pursuant to
the provisions of Section 8.01(b) hereof for its failure to perform its duties
and service the Loans in compliance with the terms of this Agreement, then the
provisions of this Section 8.01 shall have no force and effect with respect to
such failure.

      (b) None of the Loan Originator, the Depositor or the Servicer or any of
their respective Affiliates, directors, officers, employees or agents shall be
under any liability to the Owner Trustee, the Issuer, the Indenture Trustee or
the Securityholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Loan Originator,
the Depositor, the Servicer or any of their respective Affiliates, directors,
officers, employees, agents against the remedies provided herein for the breach
of any warranties, representations or covenants made herein, or against any
expense or liability specifically required to be borne by such party without
right of reimbursement pursuant to the terms hereof, or against any expense or
liability which would otherwise be imposed by reason of misfeasance, bad faith
or negligence in the performance of the respective duties of the Servicer, the
Depositor or the Loan Originator, as the case may be. The Loan Originator, the
Depositor, the Servicer and any of their respective Affiliates, directors,
officers, employees, agents may rely in good faith on any document of any kind
which, prima facie, is properly executed and submitted by any Person respecting
any matters arising hereunder.

      (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor and the Noteholders, as the ultimate assignees from the Depositor
(each an "Originator Indemnified Party," together with the Servicer Indemnified
Parties, the "Indemnified Parties"), from and against any loss, liability,
expense, damage, claim or injury arising out of or based on (i) any breach of
any representation, warranty or covenant of the Loan Originator, the Servicer or

                                      -69-
<PAGE>

their Affiliates, in any Basic Document, including, without limitation, the
origination or prior servicing of the Loans by reason of any acts, omissions, or
alleged acts or omissions arising out of activities of the Loan Originator, the
Servicer or their Affiliates, and (ii) any untrue statement by the Loan
Originator, the Servicer or its Affiliates of any material fact or any such
Person's failure to state a material fact necessary to make such statements not
misleading with respect to any such Person's statements contained in any Basic
Document, including, without limitation, any Officer's Certificate, statement,
report or other document or information prepared by any such Person and
furnished or to be furnished by it pursuant to or in connection with the
transactions contemplated thereby and not corrected prior to completion of the
relevant transaction including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the Loans or any such Person's business,
operations or financial condition, including reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Loan Originator shall
not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due to either an Originator Indemnified
Party's willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party's reckless disregard of its obligations hereunder;
provided, further, that the Loan Originator shall not be so required to
indemnify an Originator Indemnified Party or to otherwise be liable to an
Originator Indemnified Party for any losses in respect of the performance of the
Loans, the creditworthiness of the Borrowers under the Loans, changes in the
market value of the Loans or other similar investment risks associated with the
Loans arising from a breach of any representation or warranty set forth in
Exhibit E hereto, a remedy for the breach of which is provided in Section 3.06
hereof. The provisions of this indemnity shall run directly to and be
enforceable by an Originator Indemnified Party subject to the limitations
hereof.

      (d) With respect to a claim subject to indemnity hereunder made by any
Person against an Indemnified Party (a "Third Party Claim"), such Indemnified
Party shall notify the related indemnifying parties (each an "Indemnifying
Party") in writing of the Third Party Claim within a reasonable time after
receipt by such Indemnified Party of written notice of the Third Party Claim
unless the Indemnifying Parties shall have previously obtained actual knowledge
thereof. Thereafter, the Indemnified Party shall deliver to the Indemnifying
Parties, within a reasonable time after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Party relating to the Third Party Claim. No failure to give such
notice or deliver such documents shall effect the rights to indemnity hereunder.
Each Indemnifying Party shall promptly notify the Indenture Trustee and the
Indemnified Party (if other than the Indenture Trustee) of any claim of which it
has been notified and shall promptly notify the Indenture Trustee and the
Indemnified Party (if applicable) of its intended course of action with respect
to any claim.

      (e) If a Third Party Claim is made against an Indemnified Party, while
maintaining control over its own defense, the Indemnified Party shall cooperate
and consult fully with the Indemnifying Party in preparing such defense, and the
Indemnified Party may defend the same in such manner as it may deem appropriate,
including settling such claim or litigation after giving notice to the
Indemnifying Party of such terms and the Indemnifying Party will promptly
reimburse the Indemnified Party upon written request ; provided, however, that
the Indemnified Party may not settle any claim or litigation without the consent
of the Indemnifying

                                      -70-
<PAGE>

Party; provided, further, that the Indemnifying Party shall have the right to
reject the selection of counsel by the Indemnified Party if the Indemnifying
Party reasonably determines that such counsel is inappropriate in light of the
nature of the claim or litigation and shall have the right to assume the defense
of such claim or litigation if the Indemnifying Party determines that the manner
of defense of such claim or litigation is unreasonable.

      Section 8.02 Merger or Consolidation of the Servicer.

      The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

      Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such
merger, conversion, consolidation or succession to the Indenture Trustee and the
issuer.

      Section 8.03 Limitation on Liability of the Servicer and Others.

      The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 8.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.

      Section 8.04 Servicer Not to Resign; Assignment.

      The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Majority Noteholders or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee and the Majority Noteholders. No resignation
of the Servicer shall become effective until a successor servicer, appointed
pursuant to the provisions of Section 9.02 hereof shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.

      Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or

                                      -71-
<PAGE>

obligations to be performed by the Servicer hereunder and any agreement,
instrument or act purporting to effect any such assignment, transfer, delegation
or appointment shall be void.

      The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Loan Files in the possession of the Servicer) and all amounts
received with respect to the Loans and not otherwise permitted to be retained by
the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole
cost and expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Loan Files in its possession
and do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities.

      Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee.

      The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the issuer, the Owner Trustee or the Indenture Trustee.

      Section 8.06 Servicer May Own Securities.

      Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is
a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder. Securities
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement unless the Servicer or such
Affiliate owns all outstanding Securities of the related class. The Servicer
shall notify the Indenture Trustee promptly after it or any of its Affiliates
becomes the owner or pledgee of a Security.

      Section 8.07 Indemnification of the Indenture Trustee and Initial
Noteholder.

      The Servicer agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. The Servicer agrees to indemnify the Initial Noteholder in
accordance with Section 9.01 of the Note Purchase Agreement as if it were
signatory thereto.

                                      -72-
<PAGE>

                                   ARTICLE IX

                           SERVICER EVENTS OF DEFAULT

      Section 9.01 Servicer Events of Default.

      (a) In case one or more of the following Servicer Events of Default by the
Servicer shall occur and be continuing, that is to say:

            (1) any failure by Servicer to deposit into the Collection Account
      or the Distribution Account or any failure by the Servicer to make
      payments therefrom in accordance with Section 5.01; or

            (2) any failure on the part of the Servicer duly to observe or
      perform in any material respect any other of the material covenants or
      agreements on the part of the Servicer, contained in any Basic Document to
      which it is a party, which continues unremedied for a period of 30 days
      (or, in the case of payment of insurance premiums, for a period of 15
      days) after the date on which written notice of such failure, requiring
      the same to be remedied, shall have been given to the Servicer by any
      other party hereto or to the Servicer (with copy to each other party
      hereto), by Holders of 25% of the Percentage Interests of the Notes or the
      Trust Certificates; or

            (3) any breach on the part of the Servicer of any representation or
      warranty contained in any Basic Document to which it is a party that
      materially and adversely affects the interests of any of the parties
      hereto or any Securityholder and which continues unremedied for a period
      of 30 days after the date on which notice of such breach, requiring the
      same to be remedied, shall have been given to the Servicer by any other
      party hereto or to the Servicer (with copy to each other party hereto), by
      the Initial Noteholder or Holders of 25% of the Percentage Interests (as
      defined in the Indenture) of the Notes; or

            (4) there shall have been commenced before a court or agency or
      supervisory authority having jurisdiction in the premises an involuntary
      proceeding against the Servicer under any present or future federal or
      state bankruptcy, insolvency or similar law for the appointment of a
      conservator, receiver, liquidator, trustee or similar official in any
      bankruptcy, insolvency, readjustment of debt, marshaling of assets and
      liabilities or similar proceedings, or for the winding-up or liquidation
      of its affairs, which action shall not have been dismissed for a period of
      60 days; or

            (5) the Servicer shall consent to the appointment of a conservator,
      receiver, liquidator, trustee or similar official in any bankruptcy,
      insolvency, readjustment of debt, marshaling of assets and liabilities or
      similar proceedings of or relating to it or of or relating to all or
      substantially all of its property; or

            (6) the Servicer (or the Loan Originator if the Servicer is not
      Option One) fails to comply with the Financial Covenants; or

                                      -73-
<PAGE>

            (7) the Servicer ceases to be a 100% indirect wholly-owned
      subsidiary of H&R Block Inc; or

            (8) the Servicer shall admit in writing its inability to pay its
      debts generally as they become due, file a petition to take advantage of
      any applicable bankruptcy, insolvency or reorganization statute, make an
      assignment for the benefit of its creditors, voluntarily suspend payment
      of its obligations, or take any corporate action in furtherance of the
      foregoing.

      (b) Then, and in each and every such case, so long as a Servicer Event of
Default shall not have been remedied, the Indenture Trustee or the Majority
Noteholders, by notice in writing to the Servicer may, in addition to whatever
rights such Person may have at law or in equity to damages, including injunctive
relief and specific performance, may terminate all the rights and obligations of
the Servicer under this Agreement and in and to the Loans and the proceeds
thereof, as servicer under this Agreement. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Loans or otherwise, shall, subject to Section 9.02
hereof, pass to and be vested in a successor servicer, and the successor
servicer is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to each Collection Account or thereafter received with respect to
the Loans.

      (c) Upon the occurrence of (i) an Event of Default or Default under any of
the Basic Documents, (ii) a Servicer Event of Default under this Agreement,
(iii) a Rapid Amortization Trigger, or (iv) an event that shall materially
impair the ability of the Servicer to service and administer the Loans in
accordance with the terms and provisions set forth in the Servicing Addendum
(each, a "Term Event"), the Servicer's right to service the Loans pursuant to
the terms of this Agreement shall be in effect for an initial period commencing
on the date on which such Term Event occurred and shall automatically terminate
at 5:00 p.m.,New York City time, on the last business day of the calendar month
in which such Term Event occurred (the "Initial Term"). Thereafter, the Initial
Term shall be extendible in the sole discretion of the Initial Noteholder by
written notice (each, a "Servicer Extension Notice") of the Noteholder for
successive one-month terms (each such term ending at 5:00 p.m., New York City
time ("EST"), on the last business day of the related month). Following a Term
Event, the Servicer hereby agrees that the Servicer shall be bound for the
duration of the Initial Term and the term covered by any such Servicer Extension
Notice to act as the Servicer pursuant to this Agreement. Following a Term
Event, the Servicer agrees that if, as of 3:00 p.m. (EST) on the last business
day of any month, the Servicer shall not have received a Servicer Extension
Notice from the Initial Noteholder, the Servicer shall give written notice of
such non-receipt to the Initial Noteholder by 4:00 p.m. (EST). Following a Term
Event, the failure of the Initial Noteholder, to deliver a Servicer Extension
Notice by 5:00 p.m. (EST) shall result in the automatic and immediate
termination of the Servicer (the "Termination Date"). Notwithstanding these time

                                      -74-
<PAGE>

frames, the Servicer and the Initial Noteholder shall comply with all applicable
laws in connection with such transfer and the Servicer shall continue to service
the Loans until completion of such transfer.

      Section 9.02 Appointment of Successor.

      On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is automatically terminated pursuant to
Section 9.01(c) hereof, or the Owner Trustee receives the resignation of the
Servicer evidenced by an Opinion of Counsel or accompanied by the consents
required by Section 8.04 hereof, or the Servicer is removed as servicer pursuant
to this Article IX or Section 4.01 of the Servicing Addendum, then, the Majority
Noteholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof, provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.

      The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 hereof as if the Servicer had continued to act
as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15
of the Servicing Addendum. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 9.01 hereof but shall be entitled to
any accrued and unpaid Servicing Compensation to the date of termination.

      Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Indenture Trustee in connection with the termination of
the Servicer and the succession of a successor servicer shall be an expense of
the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee
and any successor servicer in effecting the termination of the Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
successor servicer all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should
have been deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. Upon the occurrence of an Event
of Default, the Majority Noteholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all documents relating to the Loans
which are then or may thereafter come into the possession of the Servicer or any
third party acting for the Servicer to be delivered to such custodian or
servicer as it selects and the Servicer shall deliver to such custodian or
servicer such

                                      -75-
<PAGE>

assignments as the Majority Noteholders shall request. No successor servicer
shall be. held liable by reason of any failure to make, or any delay in making,
any distribution hereunder or any portion thereof caused by (i) the failure of
the Servicer to deliver, or any delay in delivering, cash, documents or records
to it or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer hereunder. No appointment of a successor to the
Servicer hereunder shall be effective until written notice of such proposed
appointment shall have been provided to the Initial Noteholder, the Indenture
Trustee, the Issuer and the Depositor, the Majority Noteholders and the Issuer
shall have consented in writing thereto.

      In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.

      Section 9.03 Waiver of Defaults.

      The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall.extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so waived.

      Section 9.04 Accounting Upon Termination of Servicer.

      Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:

      (a) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee the funds in any Trust Account maintained by the Servicer;

      (b) deliver to its successor or, if none shall yet have been appointed, to
the Custodian all Loan Files and related documents and statements held by it
hereunder and a Loan portfolio computer tape;

      (c) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee and to the Issuer and the Securityholders a full
accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and

      (d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.

                                      -76-
<PAGE>

                                    ARTICLE X

                             TERMINATION; PUT OPTION

      Section 10.01 Termination.

      (a) This Agreement shall terminate upon either: (A) the later of (i) the
satisfaction and discharge of the Indenture and the provisions thereof, to the
Noteholders of all amounts due and owing in accordance with the provisions
hereof or (ii) the disposition of all funds with respect to the last Loan and
final payment of the Advance Note and the remittance of all funds due hereunder
and the payment of all amounts due and payable, including, in both cases,
without limitation, indemnification payments payable pursuant to any Basic
Document to the Indenture Trustee, the Owner Trustee, the Issuer, the Servicer
and the Custodian, written notice of the occurrence of either of which shall be
provided to the Indenture Trustee by the Servicer; or (B) the mutual consent of
the Servicer, the Depositor and all Securityholders in writing and delivered to
the Indenture Trustee by the Servicer.

      (b) The Securities shall be subject to an early redemption or termination
at the option of the Servicer and the Majority Noteholders in the manner and
subject to the provisions of Section 10.04 of this Agreement.

      (c) Except as provided in this Article X, none of the Depositor, the
Servicer nor any Certificateholder or Noteholder shall be entitled to revoke or
terminate the Trust.

      Section 10.02 Optional Termination.

      (a) The Servicer may, at its option, effect an early termination of the
Trust on any Payment Date on or after the Clean-up Call Date. The Servicer shall
effect such early termination by providing notice thereof to the Indenture
Trustee and Owner Trustee and by purchasing all of the Loans and the Advance
Note at a purchase price, payable in cash, equal to or greater than the
Termination Price. The expense of any Independent appraiser required in.
connection with the calculation and payment of the Termination Price under this
Section 10.02 shall be a nonreimbursable expense of the Servicer.

      Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c)(1) hereof) shall be deposited in the Distribution Account and
distributed by the Indenture Trustee pursuant to Section 5.01(c)(3) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans and Foreclosure
Properties subsequent to the final Payment Date shall belong to the purchaser
thereof.

                                      -77-
<PAGE>

      Section 10.03 Notice of Termination.

      Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 10.01 shall be sent by the
Indenture Trustee to the Noteholders in accordance with Section 10.02 of the
Indenture.

      Section 10.04 Put Option.

      The Majority Noteholders may, at their option, effect a put of the entire
outstanding Note Principal Balance, or any portion thereof, to the Trust on any
date by exercise of the Put Option. The Majority Noteholders shall effect such
put by providing notice thereof in accordance with Section 10.05 of the
Indenture.

      Unless otherwise agreed by the Majority Noteholders, on the third Business
Day prior to the Put Date the Issuer shall deposit the Note Redemption Amount
into the Distribution Account and, if the Put Date occurs after the termination
of the Revolving Period and constitutes a put of the entire outstanding Note
Principal Balance, any amounts then on deposit in the Collection Account (other
than any amounts withdrawable pursuant to Section 5.01(c)(1) hereof) shall be
deposited in the Distribution Account and distributed by the Paying Agent
pursuant to Section 5.01(c)(3) of this Agreement on the Put Date; and any
amounts received with respect to the Loans and Foreclosure Properties subsequent
to the Put Date shall belong to the Issuer.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

      Section 11.01 Acts of Securityholders.

      Except as otherwise specifically provided herein and except with respect
to Section 11.02(b), whenever action, consent or approval of the
Securityholders is required under this Agreement, such action, consent or
approval shall be deemed to have been taken or given on behalf of, and shall be
binding upon, all Securityholders if the Majority Noteholders agree to take
such, action or give such consent or approval.

      Section 11.02 Amendment.

      (a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Loan Originator, the Indenture Trustee and the Issuer by written
agreement with notice thereof to the Securityholders, without the consent of any
of the Securityholders, to cure any error or ambiguity, to correct or supplement
any provisions hereof which may be defective or inconsistent with any other
provisions hereof or to add any other provisions with respect to matters or
questions arising under this Agreement; provided, however, that such action will
not adversely affect in any material respect the interests of the
Securityholders, as evidenced by an Opinion of Counsel to such effect provided
at the expense of the party requesting such Amendment.

      (b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Loan Originator, the Indenture Trustee and the Issuer by
written agreement,

                                      -78-
<PAGE>

with the prior written consent of the Majority Noteholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Securityholders; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, collections of payments on
Loans or distributions which are required to be made on any Security, without
the consent of the holders of 100% of the Securities, (ii) adversely affect in
any material respect the interests of any of the holders of the Securities in
any manner other than as described in clause (i), without the consent of the
holders of 100% of the Securities, or (iii) reduce the percentage of the
Securities, the consent of which is required for any such amendment, without the
consent of the holders of 100% of the Securities.

      (c) It shall not be necessary for the consent of Securityholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof.

      Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel provided at the expense of the party requesting such amendment stating
that the execution of such amendment is authorized or permitted by this
Agreement. The Issuer and the Indenture Trustee may, but shall not be obligated
to, enter into any such amendment which affects the Issuer's own rights, duties
or immunities of the Issuer or the Indenture Trustee, as the case may be, under
this Agreement.

      Section 11.03 Recordation of Agreement.

      To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders' expense
on direction of the Majority Noteholders but only when accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of the Securityholders or is necessary for the
administration or servicing of the Loans.

      Section 11.04 Duration of Agreement.

      This Agreement shall continue in existence and effect until terminated as
herein provided.

      Section 11.05 Governing Law.

      THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.

                                      -79-
<PAGE>

      Section 11.06 Notices.

      All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (1) in the case of the Depositor, to Option One Loan Warehouse
Corporation, 3 Ada, Irvine, California 92618, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (2) in
the case of the Trust, to Option One Owner Trust 2001-2, c/o Wilmington Trust
Company, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration, telephone number: (302)
651-1000, telecopy number: (302) 636-4144, or such other address or telecopy or
telephone numbers as may hereafter be furnished to the Noteholders and the other
parties hereto in writing by the Trust; (3) in the case of the Loan Originator,
to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention:
William O'Neill, telecopy number: (949) 790-7540, telephone number: (949)
790-7504 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Loan Originator, (4) in the case of the Servicer, to Option One
Mortgage Corporation 3 Ada, Irvine, California 92618, Attention: William
O'Neill, telecopy number: (949) 790-7540, telephone number: (949) 790-7504 or
such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Servicer; and (5) in the case of the Indenture Trustee, at the Corporate Trust
Office, as defined in the Indenture, any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice or
telephone confirmation thereof by such party, except; provided, that notices to
the Securityholders shall be effective upon mailing or personal delivery.

      Section 11.07 Severability of Provisions.

      If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.

      Section 11.08 No Partnership.

      Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

      Section 11.09 Counterparts.

      This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

                                      -80-
<PAGE>

      Section 11.10 Successors and Assigns.

      This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.

      Section 11.11 Headings.

      The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.

      Section 11.12 Actions of Securityholders.

      (a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Depositor, the Servicer or the Issuer. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 11.12.

      (b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.

      (c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.

      (d) The Depositor, the Servicer or the Issuer may require additional proof
of any matter referred to in this Section 11.12 as it shall deem necessary.

      Section 11.13 Non-Petition Agreement.

      Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Servicer, the Depositor and the Indenture Trustee each severally
and not jointly covenants that it shall not, prior to the date which is one year
and one day after the payment in full of the all of the Notes, acquiesce,
petition or otherwise, directly or indirectly, invoke or cause the Trust or the
Depositor to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Issuer or Depositor 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 Issuer or Depositor or any substantial part of their respective property
or ordering the winding up or liquidation of the affairs of the Issuer or the
Depositor.

                                      -81-
<PAGE>

      Section 11.14 Holders of the Securities.

      (a) Any sums to be distributed or otherwise paid hereunder or under this
Agreement to the holders of the Securities shall be paid to such holders pro
rata based on their Percentage Interests;

      (b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Securities, such consent or approval
shall be capable of being given by the holder or holders evidencing in the
aggregate not less than 51% of the Percentage Interests.

      Section 11.15 Due Diligence Fees, Due Diligence.

      The Loan Originator acknowledges that the Initial Noteholder has the right
to perform continuing due diligence reviews with respect to the Loans, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Loan Originator agrees that
upon reasonable prior notice (with no notice being required upon the occurrence
of an Event of Default) to the Loan Originator, the Initial Noteholder, the
Indenture Trustee and Custodian or its authorized representatives will be
permitted during normal business hours to examine, inspect, and make copies and
extracts of, the Loan Files and any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control of the Servicer and the Indenture Trustee. The Loan Originator also
shall make available to the Initial Noteholder a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans. Without limiting the generality of the foregoing, the Loan
Originator acknowledges that the Initial Noteholder may purchase Notes based
solely upon the information provided by the Loan Originator to the Initial
Noteholder in the Loan Schedule and the representations, warranties and
covenants contained herein, and that the Initial Noteholder, at its option, has
the right at any time to conduct a partial or complete due diligence review on
some or all of the Loans securing such purchase, including without limitation
ordering new credit reports and new appraisals on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Loan. The Initial Noteholder may underwrite such Loans itself or engage a
mutually agreed upon third party underwriter to perform such underwriting. The
Loan Originator agrees to cooperate with the Initial Noteholder and any third
party underwriter in connection with such underwriting, including, but not
limited to, providing the Initial Noteholder and any third party underwriter
with access to any and all documents, records, agreements, instruments or
information relating to such Loans in the possession, or under the control, of
the Servicer. The Loan Originator further agrees that the Loan Originator shall
reimburse the Initial Noteholder for any and all reasonable out-of-pocket costs
and expenses incurred by the Initial Noteholder in connection with the Initial
Noteholder's activities pursuant to this Section 11.15 hereof (the "Due
Diligence Fees"), provided that, unless an Event of Default shall occur, the
aggregate reimbursement obligation of the Loan Originator under this Agreement
shall be limited to $25,000 per annum. In addition to the obligations set forth
in Section 11.17 of this Agreement, the Initial Noteholder agrees (on behalf of
itself and its Affiliates, directors, officers, employees and representatives)
to use reasonable precaution to keep confidential, in accordance with its
customary procedures for handling confidential information and in accordance
with safe and sound practices, and not to disclose to any third party, any
non-public information supplied to it

                                      -82-
<PAGE>

or otherwise obtained by it hereunder with respect to the Loan Originator or any
of its Affiliates (including, but not limited to, the Loan File); provided,
however, that nothing herein shall prohibit the disclosure of any such
information to the extent required by statute, rule, regulation or judicial
process; provided, further that, unless specifically prohibited by applicable
law or court order, the Initial Noteholder shall, prior to disclosure thereof,
notify the Loan Originator of any request for disclosure of any such non-public
information. The Initial Noteholder further agrees not to use any such
non-public information for any purpose unrelated to this Agreement and that the
Initial Noteholder shall not disclose such nonpublic information to any third
party underwriter in connection with a potential Disposition without obtaining a
written agreement from such third party underwriter to comply with the
confidentiality provisions of this Section 11.15.

      Section 11.16 No Reliance.

      Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Initial Noteholder or any of its
officers, directors, employees, agents and "control persons" as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended,
for any tax, accounting, legal or other professional advice in connection with
the transactions contemplated by the Basic Documents, that each of the Loan
Originator, the Depositor and the Issuer has retained and been advised by such
tax, accounting, legal and other professionals as it has deemed necessary in
connection with the transactions contemplated by the Basic Documents and that
the Initial Noteholder makes no representation or warranty, and shall have no
liability with respect to, the tax, accounting or legal treatment or
implications relating to the transactions contemplated by the Basic Documents.

      Section 11.17 Confidential Information.

      In addition to the confidentiality requirements set forth in Section 11.15
of the Agreement, each Noteholder, as well as the Indenture Trustee and the
Disposition Agent (each of said parties singularly referred to herein as a
"Receiving Party" and collectively referred to herein as the "Receiving
Parties"), agrees to hold and treat all Confidential Information (as defined
below) in confidence and in accordance with this Section. Such Confidential
Information will not, without the prior written consent of the Servicer and the
Loan Originator, be disclosed or used by such Receiving Parties or their
subsidiaries, Affiliates, directors, officers, members, employees, agents or
controlling persons (collectively, the "Information Recipients") other than for
the purpose of making a decision to purchase or sell Notes or taking any other
permitted action under this Agreement or any other Basic Document. Each
Receiving Party agrees to disclose Confidential Information only to its
Information Recipients who need to know it for the purpose of making a decision
to purchase or sell Notes or taking any other permitted action under this
Agreement or any other Basic Document (including in connection with the
servicing of the Loans and in connection with any servicing transfers) and who
are informed by such Receiving Party of its confidential nature and who agree to
be bound by the terms of this Section 11.17. Disclosure that is not in
violation of the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act or
other applicable law by such Receiving Party of any Confidential Information at
the request of its outside auditors or governmental regulatory authorities in
connection with an examination of a Receiving Party by any such authority shall
not constitute a

                                      -83-
<PAGE>

breach of its obligations under this Section 11.17 and shall not require the
prior consent of the Servicer and the Loan Originator.

      Each Receiving Party shall be responsible for any breach of this Section
11.17 by its Information Recipients. The Initial Noteholder may use Confidential
Information for internal due diligence purposes in connection with its analysis
of the transactions contemplated by the Basic Documents. The Disposition Agent
may disclose Confidential Information to the Disposition Participants as
required to effect Dispositions. This Section 11.17 shall terminate upon the
occurrence of an Event of Default; provided, however, that such termination
shall not relieve the Receiving Parties or their respective Information
Recipients from the obligation to comply with the Gramm-Leach-Bliley Act or
other applicable law with respect to their use or disclosure of Confidential
Information following the occurrence of an Event of Default.

      As used herein, "Confidential Information" means non-public personal
information (as defined in the Gramm-Leach-Bliley Act and its enabling
regulations issued by the Federal Trade Commission) regarding Borrowers.
Confidential Information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a
Receiving Party or any Information Recipients; (ii) was available to a Receiving
Party on a non-confidential basis prior to its disclosure to such Receiving
Party by the Servicer or the Loan Originator; (iii) is required to be disclosed
by a governmental authority or related governmental agencies or as otherwise
required by law; (iv) becomes available to a Receiving Party on a
non-confidential basis from a Person other than the Servicer or the Loan
Originator who, to the best knowledge of such Receiving Party, is not otherwise
bound by a confidentiality agreement with the Servicer or the Loan Originator
and is not otherwise prohibited from transmitting the information to such
Receiving Party.

      Section 11.18 Conflicts.

      Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.

      Section 11.19 Limitation on Liability.

      It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2001-2, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Issuer, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation,

                                      -84-
<PAGE>

representation, warranty or covenant made or undertaken by the Issuer under this
Agreement or any other related documents.

      Section 11.20 No Agency.

      Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Initial Noteholder or the
Majority Noteholders or any of their Affiliates and the Issuer, the Depositor,
the Loan Originator or the Servicer. None of the Initial Noteholder, the
Majority Noteholders or any of their Affiliates shall be liable for any acts or
actions affected in connection with a disposition of Loans, including without
limitation, any Securitization pursuant to Section 3.06, any Loan Originator Put
or Servicer Call pursuant to Section 3.07 hereof nor any Whole Loan Sale
pursuant to Section 3.07 hereof.

                            (SIGNATURE PAGE FOLLOWS)

                                      -85-
<PAGE>

      IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Indenture
Trustee and the Loan Originator have caused their names to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written, to this Second Amended and Restated Sale and Servicing Agreement.

                                OPTION ONE OWNER TRUST 2001-2,

                                By: Wilmington Trust Company not in its
                                individual capacity but solely as Owner Trustee

                                BY: /s/ Erwin M. Soriano
                                    ----------------------------------
                                Name: Erwin M. Soriano
                                Title: Assistant Vice President

                                OPTION ONE LOAN WAREHOUSE
                                CORPORATION, as Depositor

                                By: /s/ William L. O'Neill
                                    ----------------------------------
                                Name: William L. O'Neill
                                Title: Secretary and Treasurer

                                OPTION ONE MORTGAGE CORPORATION, as
                                Loan Originator and Servicer

                                BY: /s/ William L. O'Neill
                                    ----------------------------------
                                Name: William L. O'Neill
                                Title: Senior Vice President

                                WELLS FARGO BANK MINNESOTA,
                                NATIONAL ASSOCIATION, as Indenture Trustee

                                BY: /s/ Reid Denny
                                    ----------------------------------
                                Name: REID DENNY
                                Title: VICE PRESIDENT

                                      -86-
<PAGE>

                                    EXHIBIT A

               FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE

              [Letterhead of Option One Loan Warehouse Corporation]

                                                                      [Date]

Option One Owner Trust 2001-2
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration

Wells Fargo Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044
Attention: Option One Owner Trust 2001-2

Bank of America, N.A.
901 Main Street
Dallas, Texas 75202
Attention: Garrett Dolt

      Re:     Mortgage-Backed Notes

      Reference is made to the Sale and Servicing Agreement dated as of April 1,
2001 (the "Sale and Servicing Agreement"),. among Option One Owner Trust 2001-2
as Issuer, Option One Loan Warehouse Corporation, as Depositor, Option One
Mortgage Corporation, as Loan Originator and Servicer, and Wells Fargo Bank
Minnesota, National Association, as Indenture Trustee. Capitalized terms not
defined herein shall have the meanings assigned to such terms in the Sale and
Servicing Agreement.

      The undersigned ____________ , a duly appointed _______________ of Option
One Loan Warehouse Corporation, acting in such capacity, hereby requests an
advance of Additional Note Principal Balance in an amount of $ ______________,
such amount to be advanced on __________________, 200_.

                                Very truly yours,

                                OPTION ONE LOAN WAREHOUSE
                                CORPORATION

                                BY: _________________________________
                                    Name:
                                    Title:

                                      A-1
<PAGE>

                                    EXHIBIT B

           FORM OF SERVICER'S REMITTANCE REPORT TO INDENTURE TRUSTEE

Trial Balance Information Report P 139

<TABLE>
<CAPTION>
                                                Next
                            Investor  Borrower  Pymt  Interest  P&I   Principal
Investor#  Category  Loan#    Loan#     Name    Date    Rate    Pymt   Balance
<S>        <C>       <C>    <C>       <C>       <C>   <C>       <C>   <C>
</TABLE>

Collection Activity Information Report S215

<TABLE>
<CAPTION>
                         Investor Transaction       Pymt Due                           Service   Net     Total  Principal   Late
Investor# Category Loan#   Loan#     Date     Pymt#   Date   Escrow Principal Interest   Fees  Interest Deposit  Balance  Charges
<S>       <C>      <C>   <C>      <C>         <C>   <C>      <C>    <C>       <C>      <C>     <C>      <C>     <C>       <C>
</TABLE>

Payoff Activity Information Report S214

<TABLE>
<CAPTION>
                                                                Next
                         Investor Date P&I    Interest Service  Pymt                    Service   Net    Prepay   Total
Investor# Category Loan#  Loan #  Paid Pymt     Rate   Fee Rate Date Principal Interest   Fees  Interest Premium Collected
<S>       <C>      <C>   <C>      <C>  <C>    <C>      <C>      <C>  <C>       <C>      <C>     <C>      <C>     <C>
</TABLE>

                                      B-1
<PAGE>

                                    EXHIBIT C

                             FORM OF S&SA ASSIGNMENT

      ASSIGNMENT NO. __ OF LOANS ("S&SA Assignment"), dated __, (the "Transfer
Date"), by OPTION ONE LOAN WAREHOUSE CORPORATION, (the "Depositor") to OPTION
ONE OWNER TRUST 2001-2 (the "Issuer") pursuant to the Sale and Servicing
Agreement referred to below.

                                  WITNESSETH:

      WHEREAS, the Depositor and the Issuer are parties to the Sale and
Servicing Agreement dated as of April 1, 2001 (the "Sale and Servicing
Agreement") among the Depositor, the Issuer, the Servicer, the Loan Originator
and the Indenture Trustee on behalf of the Noteholders, hereinafter as such
agreement may have been, or may from time to time be, amended, supplemented or
otherwise modified;

      WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor
wishes to sell, convey, transfer and assign Loans to the Issuer in exchange for
cash consideration, the Trust Certificates and other good and valid
consideration the receipt and sufficiency of which is hereby acknowledged; and

      WHEREAS, the Issuer is willing to acquire such Loans subject to the terms
and conditions hereof and of the Sale and Servicing Agreement;

      NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:

      1. Defined Terms. All capitalized terms defined in the Sale and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.

      2. Designation of Loans. The Depositor does hereby deliver herewith a
Loan Schedule containing a true and complete list of each Loan to be conveyed on
the Transfer Date. Such list is marked as Schedule A to this S&SA Assignment
and is hereby incorporated into and made a part of this S&SA Assignment.

      3. Conveyance of Loans. The Depositor hereby sells, transfers, assigns
and conveys to the Issuer, without recourse, all of the right, title and
interest of the Depositor in and to the Loans and all proceeds thereof listed on
the Loan Schedule attached hereto, including all interest and principal received
by the Depositor or the Servicer on or with respect to the Loans on or after the
related Transfer Cut-off Date, together with all right, title and interest in
and to the proceeds of any related Mortgage Insurance Policies.

      4. Issuer Acknowledges Assignment. As of the Transfer Date, pursuant to
this S&SA Assignment and Section 2.01(a) of the Sale and Servicing Agreement,
the Issuer acknowledges its receipt of the Loans listed on the attached Loan
Schedule and all other related property in the Trust Estate.

                                      C-1
<PAGE>

      5. Acceptance of Rights But Not Obligations. The foregoing sale,
transfer, assignment, set over and conveyance does not, and is not intended to,
result in a creation or an assumption by the Issuer of any obligation of the
Depositor, the Loan Originator or any other Person in connection with this S&SA
Assignment or under any agreement or instrument relating thereto except as
specifically set forth herein.

      6. Depositor Acknowledges Receipt of Sales Price. The Depositor hereby
acknowledges receipt of the Sales Price or that is otherwise distributed at its
direction.

      7. Conditions Precedent. The conditions precedent in Section 2.06(a) of
the Sale and Servicing Agreement have been satisfied.

      8. Amendment of the Sale and Servicing Agreement. The Sale and Servicing
Agreement is hereby amended by providing that all references to the "Sale and
Servicing Agreement", "this Agreement" and "herein" shall be deemed from and
after the Transfer Date to be a dual reference to the Sale and Servicing
Agreement as supplemented by this S&SA Assignment. Except as expressly amended
hereby, all of the representations, warranties, terms, covenants and conditions
of the Sale and Servicing Agreement shall remain unamended and the Sale and
Servicing Agreement shall continue to be, and shall remain, in full force and
effect in accordance with its terms and except as expressly provided herein,
this S&SA Assignment shall not constitute or be deemed to constitute a waiver of
compliance with or consent to noncompliance with any term or provision of the
Sale and Servicing Agreement.

      9. Counterparts. This S&SA Assignment may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument.

                                      C-2
<PAGE>

      IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment to be
duly executed and delivered by their respective duly authorized officers on the
day and year first above written.

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION,
                                          as Depositor

                                        By: ___________________________
                                        Name:
                                        Title:

                                        OPTION ONE OWNER TRUST 2001-2,
                                          as Issuer

                                        By: Wilmington Trust Company not in its
                                            individual capacity but solely as
                                            Owner Trustee

                                        By: ___________________________
                                        Name:
                                        Title:

                                      C-3
<PAGE>

                                    EXHIBIT D

                     PIGGY-BACKED LOAN UNDERWRITING CRITERIA

                                      D-1
<PAGE>

                    UNDERWRITING MATRIX FOR 80/20 PIGGYBACK

<TABLE>
<CAPTION>
           RISK GRADE  AA*                                               FULL INCOME DOCUMENTATION
- ------------------------------------    -------------------------------------------------------------------------------------------
<S>                                     <C>
            Mortgage Credit             1x30 maximum in the last 12 months . 3x30, 0x60 maximum in the last 24 months. Maximum
            (if renting, VOR is         three rolling 30s counted as one occurrence . All mortgages must be current at time of
            required)                   application and funding. No foreclosure proceedings in the last 60 months.

CREDIT      FICO                        FICO score of 620 minimum required.

            Bankruptcies                Bankruptcies must be discharged, dismissed, or paid for a minimum of 36 months prior to
                                        funding.

            Charge Offs, Collections    All accounts less than two years old must be paid through closing.
            and Judgements

            Verif. of Income- Wage      Two years 1040s or W-2s and recent pay stubs verifying 24 months of income.
            Earner                      of gross rents used)

            Verif. of Income-           Must be self-employed for a minimum of three years (with the same company).
            Self-Employed               Recent two years 1040s (with all supporting schedules) and YTD personal bank statements.
            (>25% ownership)            Income must be averaged, unless income is declining.

            Verif. of Fixed Income      Award letters or 1099's for all fixed income. Foster care income not allowed.

            Verif. of Rental Income     Most recent two years 1040s (with Schedule E) and YTD personal bank statements.
INCOME      (75% of gross rents used)

            Source of Funds             Yes. (Source of funds not required, if short < or = $1,000.)

            Debt Ratio                  Maximum debt ratio 45%. The occupants' debt ratio cannot exceed 45% for loans with
                                        non-occupant co-borrowers.
                                        Deferred student loan payments are included . Auto lease payments, regardless of remaining
                                        term, are included.

            Disposable Income           Monthly disposable income must be $600 gross per family member.

            Miscellaneous               Purchase money only. Cannot subordinate tax liens . Maximum combined loan amount is
                                        $350,000. No points, fees, or prepayment charges allowed on the piggyback 2nds . Par rates
                                        only on the second mortgage. Maximum LTV on the first is 80% . Minimum $20,000 and maximum
                                        $50,000 loan amount on the second mortgage. LTV on first may be adjusted to meet the
PROPERTY                                $20,000 second mortgage minimum.

            Property                    SFR (no manufactured homes) and Fee Simple Townhouses in good to average condition.
                                        Owner-occupied only. No second homes allowed. No appraisal variance is allowed. Minimum 800
                                        square feet. Maximum $1,000 deferred maintenance.
</TABLE>
<PAGE>

                                    EXHIBIT E

               REPRESENTATIONS AND WARRANTIES REGARDING THE LOANS

      The Loan Originator hereby represents and warrants to the other parties to
the Sale and Servicing Agreement and the Securityholders, with respect to each
such Loan as of the related Transfer Date (except as otherwise expressly agreed
in writing by the Majority Noteholders):

            1) The information set forth in the related Loan Schedule and the
information contained on the electronic data file delivered to the Initial
Noteholder is complete, true and correct;

            2) All payments required to be made up to the close of business on
the Closing Date for such Loan under the terms of the Promissory Note have been
made; the Loan Originator has not advanced funds, or induced, solicited or
knowingly received any advance of funds from a party other than the owner of the
related Mortgaged Property, directly or indirectly, for the payment of any
amount required by the Promissory Note or Mortgage; and there has been no
delinquency, exclusive of any period of grace, in any payment by the Borrower
thereunder during the last twelve months;

            3) There are no delinquent taxes, ground rents, water charges, sewer
rents, assessments, insurance premiums, leasehold payments, including
assessments payable in future installments or other outstanding charges
affecting the related Mortgaged Property;

            4) The terms of the Promissory Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments, recorded in the applicable public recording office if necessary to
maintain the lien priority of the Mortgage, and which have been delivered to the
Custodian; the substance of any such waiver, alteration or modification has
been approved by the insurer under the Primary Insurance Policy, if any, and the
title insurer, to the extent required by the related policy, and is reflected on
the related Loan Schedule. No instrument of waiver, alteration or modification
has been executed, and no Borrower has been released, in whole or in part,
except in connection with an assumption agreement approved by the insurer under
the Primary Insurance Policy, if any, the title insurer, to the extent required
by the policy, and which assumption agreement has been delivered to the
Custodian and the terms of which are reflected in the related Loan Schedule;

            5) The Promissory Note and the Mortgage are not subject to any right
of rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the Promissory Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;

            6) All buildings upon the Mortgaged Property are insured by an
insurer acceptable to Fannie Mae or Freddie Mac against loss by fire, hazards of
extended coverage and such other hazards as are customary in the area where the
Mortgaged Property is located, pursuant to insurance policies conforming to the
requirements of the Servicing Addendum. All such insurance policies contain a
standard mortgagee clause naming the Loan Originator, its successors and assigns

                                      E-1

<PAGE>

as mortgagee and all premiums thereon have been paid. If the Mortgaged Property
is in an area identified on a Flood Hazard Map or Flood Insurance Rate Map
issued by the Federal Emergency Management Agency as having special flood
hazards (and such flood insurance has been made available) a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration is in effect which policy conforms to the requirements
of Fannie Mae or Freddie Mac. The Mortgage obligates the Borrower thereunder to
maintain all such insurance at the Borrower's cost and expense, and on the
Borrower's failure to do so, authorizes the holder of the Mortgage to maintain
such insurance at Borrower's cost and expense and to seek reimbursement therefor
from the Borrower;

            7) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity, fair housing
or disclosure laws applicable to the origination and servicing of mortgage loans
of a type similar to the Loans have been complied with;

            8) The Mortgage has not been satisfied, canceled, subordinated or
rescinded, in whole or in part, and the Mortgaged Property has not been released
from the lien of the Mortgage, in whole or in part, nor has any instrument been
executed that would effect any such satisfaction, cancellation, subordination,
rescission or release;

            9) The Mortgage is a valid, existing and enforceable first lien (or,
with respect to Loans identified as Second Lien Loan on the Loan Schedule,
second lien) on the Mortgaged Property, including all improvements on the
Mortgaged Property subject only to (a) the lien of current real property taxes
and assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of the public record as
of the date of recording being acceptable to mortgage lending institutions
generally and specifically referred to in the lender's title insurance policy
delivered to the originator of the Loan and which do not adversely affect the
Appraised Value of the Mortgaged Property, and (c) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged Property. Any
security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Loan establishes and creates a valid, existing
and enforceable first lien and first priority security interest on the property
described therein and the Loan Originator has full right to sell and assign the
same to the Depositor and the Issuer. The Mortgaged Property was not, as of the
date of origination of the Loan, subject to a mortgage, deed of trust, deed to
secure debt or other security instrument creating a lien subordinate to the lien
of the Mortgage;

            10) The Promissory Note and the related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms;

            11) All parties to the Promissory Note and the Mortgage had legal
capacity to enter into the Loan and to execute and deliver the Promissory Note
and the Mortgage, and the Promissory Note and the Mortgage have been duly and
properly executed by such parties. The Borrower is a natural person;

            12) The proceeds of the Loan have been fully disbursed to or for the
account of the Borrower and there is no obligation for the mortgagee to advance
additional funds thereunder

                                      E-2

<PAGE>

and any and all requirements as to completion of any on-site or off-site
improvement and as to disbursements of any escrow funds therefor have been
complied with. All costs, fees and expenses incurred in making or closing the
Loan and the recording of the Mortgage have been paid, and the Borrower is not
entitled to any refund of any amounts paid or due to the Loan Originator
pursuant to the Promissory Note or Mortgage;

            13) The Loan Originator is the sole legal, beneficial and equitable
owner of the Promissory Note and the Mortgage and has full right to transfer and
sell the Loan to the Depositor and the Issuer free and clear of any encumbrance,
equity, lien, pledge, charge, claim or security interest;

            14) All parties which have had any interest in the Loan, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period in which
they held and disposed of such interest, were) in compliance with any and all
applicable "doing business" and licensing requirements of the laws of the state
wherein the Mortgaged Property is located;

            15) The Loan is covered by a lender's title insurance policy (which,
in the case of an ARM has an adjustable rate mortgage endorsement) commercially
acceptable to prudent mortgage lending institutions, issued by a title insurer
licensed and qualified to do business in the jurisdiction where the Mortgaged
Property is located, insuring (subject to the exceptions contained in (ix)(a)
and (b) above) the Loan Originator, its successors and assigns as to the first
priority lien of the Mortgage in the original principal amount of the Loan and,
with respect to any ARM, against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage
providing for adjustment in the Loan Interest Rate and Monthly Payment.
Additionally, such lender's title insurance policy affirmatively insures ingress
and egress to and from the Mortgaged Property, and against encroachments by or
upon the Mortgaged Property or any interest therein. The Loan Originator is the
sole insured of such lender's title insurance policy, and such lender's title
insurance policy is in full force and effect and will be in full force and
effect, and the issuer will be insured thereunder, upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under such
lender's title insurance policy, and no prior holder of the related Mortgage,
including the Loan Originator, has done, by act or omission, anything which
would impair the coverage of such lender's title insurance policy;

            16) There is no default, breach, violation or event of acceleration
existing under the Mortgage or the Promissory Note and no event which, with the
passage of time or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of acceleration, and the
Loan Originator has not waived any default, breach, violation or event of
acceleration;

            17) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that under
law could give rise to such lien) affecting the related Mortgaged Property which
are or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;

            18) All improvements which were considered in determining the
Appraised Value of the related Mortgaged Property lay wholly within the
boundaries and building restriction lines

                                      E-3

<PAGE>

of the Mortgaged Property, and no improvements on adjoining properties encroach
upon the Mortgaged Property;

            19) The Loan was originated by the Loan Originator or by a savings
and loan association, a savings bank, a commercial bank or similar banking
institution which is supervised and examined by a federal or state authority, or
by a mortgagee approved as such by the Secretary of HUD;

            20) Principal payments on the Loan commenced no more than two months
after the proceeds of the Loan were disbursed. The Loan bears interest at the
Loan Interest Rate. With respect to each Loan unless otherwise stated on the
Loan Schedule, the Promissory Note is payable on the first day of each month,
in Monthly Payments, which, in the case of each fixed-rate Loan except for
Balloon Loans, are sufficient to fully amortize the original principal balance
over the original term thereof and to pay interest at the related Loan Interest
Rate, and, in the case of each ARM, are changed on each Adjustment Date, and in
any case, are sufficient to fully amortize the original principal balance over
the original term thereof and to pay interest at the related Loan Interest Rate.
The Promissory Note does not permit negative amortization. No Loan is a
Convertible Mortgage Loan;

            21) The origination and collection practices used by the Loan
Originator with respect to each Promissory Note and Mortgage have been in all
respects legal, proper, prudent and customary in the mortgage origination and
servicing industry. The Loan has been serviced by the Loan Originator and any
predecessor servicer in accordance with the terms of the Promissory Note. With
respect to escrow deposits and Escrow Payments, if any, all such payments are in
the possession of, or under the control of, the Loan Originator and there exist
no deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or Escrow Payments or
other charges or payments due the Loan Originator have been capitalized under
any Mortgage or the related Promissory Note and no such escrow deposits or
Escrow Payments are being held by the Loan Originator for any work on a
Mortgaged Property which has not been completed;

            22) The Mortgaged Property is free of material damage and waste and
there is no proceeding pending for the total or partial condemnation thereof;

            23) The Mortgage and related Promissory Note contain customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (a) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by
judicial foreclosure. The Mortgaged Property has not been subject to any
bankruptcy proceeding or foreclosure proceeding and the Borrower has not filed
for protection under applicable bankruptcy laws. There is no homestead or other
exemption available to the Borrower which would interfere with the right to sell
the Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage. The Borrower has not notified the Loan Originator and the Loan
Originator has no knowledge of any relief requested or allowed to the Borrower
under the Soldiers and Sailors Civil Relief Act of 1940;

                                      E-4

<PAGE>

            24) The Loan was underwritten in accordance with the underwriting
standards of the Loan Originator in effect at the time the Loan was originated;
and the Promissory Note and Mortgage are on forms acceptable to prudent mortgage
lending institutions in the secondary market;

            25) The Promissory Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage on the Mortgaged
Property and the security interest of any applicable security agreement or
chattel mortgage referred to in (x) above;

            26) The Loan File contains an appraisal of the related Mortgaged
Property which satisfied the standards of Fannie Mae or Freddie Mac and was made
and signed, prior to the approval of the Loan application, by a qualified
appraiser, duly appointed by the Loan Originator, who had no interest, direct or
indirect in the Mortgaged Property or in any loan made on the security thereof,
whose compensation is not affected by the approval or disapproval of the Loan
and who met the minimum qualifications of Fannie Mae or Freddie Mac. Each
appraisal of the Loan was made in accordance with the relevant provisions of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989;

            27) In the event the Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Issuer to the trustee under the deed
of trust, except in connection with a trustee's sale after default by the
Borrower;

            28) No Loan contains provisions pursuant to which Monthly Payments
are (a) paid or partially paid with funds deposited in any separate account
established by the Loan Originator, the Borrower, or anyone on behalf of the
Borrower, (b) paid by any source other than the Borrower or (c) contains any
other similar provisions which may constitute a "buydown" provision. The Loan is
not a graduated payment mortgage loan and the Loan does not have a shared
appreciation or other contingent interest feature;

            29) The Borrower has executed a statement to the effect that the
Borrower has received all disclosure materials required by applicable law with
respect to the making of fixed rate mortgage loans in the case of fixed-rate
Loans, and adjustable rate mortgage loans in the case of ARMs and rescission
materials with respect to Refinanced Loans, and such statement is and will
remain in the Loan File;

            30) No Loan was made in connection with (a) the construction or
rehabilitation of a Mortgaged Property or (b) facilitating the trade-in or
exchange of a Mortgaged Property;

            31) The Loan Originator has no knowledge of any circumstances or
condition with respect to the Mortgage, the Mortgaged Property, the Borrower or
the Borrower's credit standing that can reasonably be expected to cause the Loan
to be an unacceptable investment, cause the Loan to become delinquent, or
adversely affect the value of the Loan;

            32) Each Loan listed on the Loan Schedule as being subject to a
Primary Mortgage Insurance Policy is and will be subject to a Primary Mortgage
Insurance Policy, issued by a Qualified Insurer, which insures that portion of
the Loan in excess of the portion of the

                                      E-5

<PAGE>

Appraised Value of the Mortgaged Property required by Fannie Mae. All
provisions of such Primary Insurance Policy have been and are being complied
with, such policy is in full force and effect, and all premiums due thereunder
have been paid. Any Mortgage subject to any such Primary Insurance Policy
obligates the Borrower thereunder to maintain such insurance and to pay all
premiums and charges in connection therewith. The Loan Interest Rate for the
Loan does not include any such insurance premium;

            33) The Mortgaged Property is lawfully occupied under applicable
law; all inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy, have been made or obtained from the appropriate
authorities;

            34) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Loan has taken place on the part of any
person, including without limitation the Borrower, any appraiser, any builder or
developer, or any other party involved in the origination of the Loan or in the
application of any insurance in relation to such Loan;

            35) The Assignment of Mortgage is in recordable form and is
acceptable for recording under the laws of the jurisdiction in which the
Mortgaged Property is located;

            36) Any principal advances made to the Borrower prior to the
Transfer Cut-off Date have been consolidated with the outstanding principal
amount secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having first lien priority by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to Fannie Mae and Freddie Mac. The consolidated principal amount
does not exceed the original principal amount of the Loan;

            37) Except as set forth on the Loan Schedule, no Loan has a balloon
payment feature;

            38) If the residential dwelling on the Mortgaged Property is a
condominium unit or a unit in a planned unit development (other than a de
minimis planned unit development) such condominium or planned unit development
project meets the eligibility requirements of Fannie Mae and Freddie Mac;

            39) Interest on each Loan is calculated on the basis of a 360-day
year consisting of twelve 30-day months;

            40) The Mortgaged Property is in material compliance with all
applicable environmental laws pertaining to environmental hazards including,
without limitation, asbestos, and neither the Loan Originator nor, to the Loan
Originator's knowledge, the related Borrower has received any notice of any
violation or potential violation of such law;

            41) No Loan is in violation of the Home Ownership and Equity
Protection Act of 1994;

                                      E-6

<PAGE>

            42) The Mortgage Loan is a "qualified mortgage" within the meaning
of Section 860G(a)(3) or any successor provision thereof of Internal Revenue
Code of 1986, as amended;

            43) The Issuer has caused or will cause to be performed any and all
acts required to preserve the rights and remedies of Noteholders in any
insurance policies applicable to the Mortgage Loans including, without
limitation, any necessary notifications of insurers, assignments of policies or
interests therein, and establishments of coinsured, joint loss payee and
mortgagee rights in favor of Noteholders;

            44) The origination date is no earlier than four (4) months prior to
the date the Mortgage Loan is initially purchased by the Trust,

            45) No Borrower is offered or required to purchase single premium
credit insurance in connection with the origination of the related Mortgage
Loan, and

            46) Each Mortgage Loan at the time it was made complied in all
material respects with applicable local, state, and federal laws, including, but
not limited to, all applicable predatory and abusive lending laws.

                                      E-7

<PAGE>

                                    EXHIBIT F

                               SERVICING ADDENDUM

      Section 4.01 Duties of the Servicer.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with this Agreement and shall have full power
and authority, acting alone, to do or cause to be done any and all things in
connection with such servicing and administration which the Servicer may deem
necessary or desirable and consistent with the terms of this Agreement.

      The duties of the Servicer shall include collecting and posting of all
payments, responding to inquiries of Borrowers or by federal, state or local
government authorities with respect to the Loans, investigating delinquencies,
reporting tax information to Borrowers in accordance with its customary
practices and accounting for collections and furnishing monthly and annual
statements to the Indenture Trustee and the Initial Noteholder, with respect to
distributions, making Servicing Advances pursuant hereto. The Servicer shall
follow its customary standards, policies and procedures in performing its duties
as Servicer. The Servicer shall cooperate with the Indenture Trustee and
furnish to the Indenture Trustee with reasonable promptness information in its
possession as may be necessary or appropriate to enable the Indenture Trustee to
perform its tax reporting duties hereunder, if any.

      The Servicer shall give prompt notice to the Indenture Trustee and the
Initial Noteholder of any Proceeding, of which the Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.

      In the event of a Disposition or other removal of a Loan from the Trust
Estate, the Servicer's obligations under this Agreement shall be terminated with
respect to such Loan.

      The Servicer agrees that in the event that any Notes are outstanding after
the applicable Maturity Date and the Majority Noteholders may appoint a
successor servicer in accordance with the provisions of Section 9.02. The
Majority Noteholders may, by written notice to the Servicer and the Indenture
Trustee, elect to have the Servicer continue its duties hereunder after such
Maturity Date.

      Consistent with the terms of this Agreement, the Servicer may waive,
modify or vary any term of any Loan or consent to the postponement of strict
compliance with any such term or in any manner grant indulgence to any Borrower
if in the Servicer's reasonable and prudent determination such waiver,
modification, postponement or indulgence is not materially adverse to the Issuer
or the Noteholders; provided, however, that the Servicer shall not permit any
modification with respect to any Loan that would change the Loan Interest Rate,
defer or forgive the payment thereof or of any principal or interest payments,
reduce the outstanding principal amount (except for actual payments of
principal), make additional advances of additional principal or extend the final
maturity date on such Loan. Without limiting the generality of the foregoing,
the Servicer shall continue, and is hereby authorized and empowered, to execute
and deliver on behalf of itself, and the Issuer, all instruments of satisfaction
or cancellation, or of partial or full release, discharge and all other
comparable instruments, with respect to the Loans and with respect to the
Mortgaged Property. If

                                      F-1

<PAGE>

reasonably required by the Servicer, the Issuer shall furnish the Servicer with
any powers of attorney and other documents necessary or appropriate to enable
the Servicer to carry out its servicing and administrative duties under this
Agreement.

      In servicing and administering the Loans, the Servicer shall employ
procedures including collection procedures and exercise the same care that it
customarily employs and exercises in servicing and administering mortgage loans
for its own account giving due consideration to accepted mortgage servicing
practices of prudent lending institutions and the Issuer's and the Noteholders'
reliance on the Servicer.

      Section 4.02 Collection of Loan Payments.

      Continuously from the date hereof until the principal and interest on all
Loans are paid in full, the Servicer shall proceed diligently to collect all
payments due under each Loan when the same shall become due and payable and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Primary Insurance Policy, follow such
collection procedures as it follows with respect to mortgage loans comparable to
the Loans and held for its own account. Further, the Servicer shall take special
care in ascertaining and estimating annual ground rents, taxes, assessments,
water rates, fire and hazard insurance premiums, mortgage insurance premiums,
and all other charges that, as provided in the Mortgage, will become due and
payable to the end that the installments payable by the Borrowers will be
sufficient to pay such charges as and when they become due and payable.

      Section 4.03 Realization Upon Defaulted Loans.

      (a) The Servicer shall use its best efforts, consistent with the
procedures that the Servicer would use in servicing loans for its own account,
to foreclose upon or otherwise comparably convert the ownership of such
Mortgaged Properties as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 4.01. The Servicer shall use its best efforts to realize
upon Defaulted Loans in such a manner as will maximize the receipt of principal
and interest by the Issuer, taking into account, among other things, the timing
of foreclosure proceedings; provided, however, that the Servicer shall not sell
any Defaulted Loan unless it has been directed to do so by the Majority
Noteholder. The foregoing is subject to the provisions that, in any case in
which Mortgaged Property shall have suffered damage, the Servicer shall not be
required to expend its own funds toward the restoration of such property in
excess of $2,000 unless it shall determine in its discretion (i) that such
restoration will increase the proceeds of liquidation of the related Loan to the
Issuer after reimbursement to itself for such expenses, and (ii) that such
expenses will be recoverable by the Servicer through Mortgage Insurance Proceeds
or Liquidation Proceeds from the related Mortgaged Property. In the event that
any payment due under any Loan is not paid when the same becomes due and
payable, or in the event the Borrower fails to perform any other covenant or
obligation under the Loan and such failure continues beyond any applicable grace
period, the Servicer shall take such action as it shall deem to be in the best
interest of the Issuer and the Noteholders. The Servicer shall notify the
Issuer and the Noteholders in writing of the commencement of foreclosure
proceedings. In such connection, the Servicer shall be responsible for all
costs and expenses incurred by it in any such proceedings; provided, however,
that it shall be entitled to reimbursement thereof from the related Mortgaged
Property.

                                      F-2

<PAGE>

      (b) Notwithstanding the foregoing provisions of this Section 4.03, with
respect to any Loan as to which the Servicer has received actual notice of, or
has actual knowledge of, the presence of any toxic or hazardous substance on the
related Mortgaged Property the Servicer shall not either (i) obtain title to
such Mortgaged Property as a result of or in lieu of foreclosure or otherwise,
or (ii) otherwise acquire possession of, or take any other action, with respect
to, such Mortgaged Property if, as a result of any such action, the Issuer would
be considered to hold title to, to be a mortgagee-in-possession of, or to be an
owner or operator of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Servicer has also
previously determined, based on its reasonable judgment and a prudent report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:

            (1) such Mortgaged Property is in compliance with applicable
            environmental laws or, if not, that it would be in the best economic
            interest of the Issuer and the Noteholders to take such actions as
            are necessary to bring the Mortgaged Property into compliance
            therewith; and

            (2) there are no circumstances present at such Mortgaged Property
            relating to the use, management or disposal of any hazardous
            substances, hazardous materials, hazardous wastes, or
            petroleum-based materials for which investigation, testing,
            monitoring, containment, clean-up or remediation could be required
            under any federal, state or local law or regulation, or that if any
            such materials are present for which such action could be required,
            that it would be in the best economic interest of the Issuer and the
            Noteholders to take such actions with respect to the affected
            Mortgaged Property.

      The cost of the environmental audit report contemplated by this Section
4.03 shall be advanced by the Servicer, subject to the Servicer's right to be
reimbursed therefor from the Collection Account as provided in Section 5.01(c).

      If the Servicer determines, as described above, that it is in the best
economic interest of the Issuer and the Noteholders to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Servicer shall take such action as it deems to be in the best economic
interest of the Issuer and the Noteholders. The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Servicer, subject
to the Servicer's right to be reimbursed therefor from the Collection Account as
provided in Section 5.01(c).

      (c) The Servicer shall determine, with respect to each Defaulted Loan,
when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts it expects to recover from or on account of such
defaulted Loan, whereupon such Loan shall become a "Liquidated Loan" and shall
promptly deliver to the Initial Noteholder a related liquidation report with
respect to such Liquidated Loan.

      Section 4.04 Establishment of Escrow Accounts, Deposits in Escrow
                   Accounts.

                                      F-3

<PAGE>

      The Servicer shall segregate and hold all funds collected and received
pursuant to each Loan which constitute Escrow Payments separate and apart from
any of its own funds and general assets and shall establish and maintain one or
more Escrow Accounts, in accordance with the related Mortgage and applicable
law.

      The Servicer shall deposit in the Escrow Account or Accounts within two
(2) Business Days after receipt, and retain therein, (i) all Escrow Payments
collected on account of the Loans, for the purpose of effecting timely payment
of any such items as required under the terms of this Agreement, and (ii) all
Mortgage Insurance Proceeds which are to be applied to the restoration or repair
of any Mortgaged Property. The Servicer shall make withdrawals therefrom only
to effect such payments as are required under this Agreement, and for such other
purposes as shall be as set forth or in accordance with Section 4.06. The
Servicer shall be entitled to retain any interest paid on funds deposited in the
Escrow Account by the depository institution other than interest on escrowed
funds required by law to be paid to the Borrower and, to the extent required by
law, the Servicer shall pay interest on escrowed funds to the Borrower
notwithstanding that the Escrow Account is non-interest bearing or that interest
paid thereon is insufficient for such purposes.

      Section 4.05 Permitted Withdrawals From Escrow Account.

      Withdrawals from the Escrow Account may be made by the Servicer (i) to
effect timely payments of ground rents, taxes, assessments, water rates, hazard
insurance premiums, Primary Insurance Policy premiums, if applicable, and
comparable items, (ii) to reimburse the Servicer for any Servicing Advance made
by the Servicer with respect to a related Loan but only from amounts received on
the related Loan which represent late payments or collections of Escrow Payments
thereunder, (iii) to refund to the Borrower any funds as may be determined to be
overages, (iv) for transfer to the Collection Account in accordance with the
terns of this Agreement, (v) for application to restoration or repair of the
Mortgaged Property, (vi) to pay to the Servicer, or to the Borrower to the
extent required by law, any interest paid on the funds deposited in the Escrow
Account, or (vii) to clear and terminate the Escrow Account on the termination
of this Agreement.

      Section 4.06 Payment of Taxes, Insurance and Other Charges, Maintenance
                   of Primary Insurance Policies; Collections Thereunder.

      With respect to each Loan, the Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of Primary Insurance Policy premiums and fire and hazard insurance
coverage and shall obtain, from time to time, all bills for the payment of such
charges, including insurance renewal premiums and shall effect payment thereof
prior to the applicable penalty or termination date and at a time appropriate
for securing maximum discounts allowable, employing for such purpose deposits of
the Borrower in the Escrow Account which shall have been estimated and
accumulated by the Servicer in amounts sufficient for such purposes, as allowed
under the terms of the Mortgage and applicable law. To the extent that the
Mortgage does not provide for Escrow Payments, the Servicer shall determine that
any such insurance premium payments are made by the Borrower at the time they
first become due and any such tax payments are made in time to avoid loss of the
Mortgaged Property in a tax sale. The Servicer assumes full responsibility for
the timely payment of all such bills and shall effect payments of all such bills
prior to the termination of any such insurance coverage or loss of any such
Mortgaged Property in a tax

                                      F-4

<PAGE>

sale irrespective of the Borrower's faithful performance in the payment of same
or the making of the Escrow Payments and shall make advances from its own funds
to effect such payments.

      The Servicer shall maintain in full force and effect, a Primary Insurance
Policy, issued by a Qualified Insurer, with respect to each Loan for which such
coverage is required. Such coverage shall be maintained until the Loan-to-Value
Ratio of the related Loan is reduced to that amount for which Fannie Mae no
longer requires such insurance to be maintained. The Servicer will not cancel or
refuse to renew any Primary Insurance Policy, if any, in effect on the Closing
Date that is required to be kept in force under this Agreement unless a
replacement Primary Insurance Policy, if any, for such canceled or non-renewed
policy is obtained from and maintained with a Qualified Insurer. The Servicer
shall not take any action which would result in non-coverage under any
applicable Primary Insurance Policy of any loss which, but for the actions of
the Servicer, would have been covered thereunder. In connection with any
assumption or substitution agreement entered into or to be entered into pursuant
to Section 4.12, the Servicer shall promptly notify the insurer under the
related Primary Insurance Policy, if any, of such assumption or substitution of
liability in accordance with the terms of such policy and shall take all actions
which may be required by such insurer as a condition to the continuation of
coverage under the Primary Insurance Policy, if any. If such Primary Insurance
Policy is terminated as a result of such assumption or substitution of
liability, the Servicer shall obtain a replacement Primary Insurance Policy as
provided above.

      In connection with its activities as servicer, the Servicer agrees to
prepare and present, on behalf of itself, the Issuer and the Noteholders, claims
to the insurer under any Primary Insurance Policy in a timely fashion in
accordance with the terms of such policies and, in this regard, to take such
action as shall be necessary to permit recovery under any Primary Insurance
Policy respecting a defaulted Loan. Pursuant to Section 5.01, any amounts
collected by the Servicer under any Primary Insurance Policy shall be deposited
in the Collection Account.

      Section 4.07 Transfer of Accounts.

      The Servicer may transfer the Collection Account or the Escrow Account to
a different depository institution from time to time. Such transfer shall be
made only upon obtaining the consent of the Initial Noteholder, which consent
shall not be unreasonably withheld or delayed. In any case, the Collection
Account and the Escrow Account shall be an Eligible Account.

      Section 4.08 Maintenance of Hazard Insurance.

      The Servicer shall cause to be maintained for each Loan fire and hazard
insurance with extended coverage as is customary in the area where the Mortgaged
Property is located in an amount which is at least equal to the lesser of (i)
100% of the maximum insurable value of the improvements securing the Loan or
(ii) the outstanding principal balance of the Loan, in each case in an amount
not less than such amount as is necessary to prevent the Borrower and/or the
Issuer from becoming a co-insurer. If the Mortgaged Property is in an area
identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by
the Flood Emergency Management Agency as having special flood hazards and such
flood insurance has been made available, the Servicer will cause to. be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the lesser
of (i) the outstanding principal balance of the Loan

                                      F-5

<PAGE>

or (ii) the maximum amount of insurance which is available under the National
Flood Insurance Act of 1968 or the Flood Disaster Protection Act of 1973, as
amended. The Servicer also shall maintain on any Foreclosure Property, fire and
hazard insurance with extended coverage in an amount which is at least equal to
the lesser of (i) 100% of the maximum insurable value of the improvements which
are a part of such property and (ii) the outstanding principal balance of the
related Loan at the time it became a Foreclosure Property, liability insurance
and, to the extent required and available under the National Flood Insurance Act
of 1968 or the Flood Disaster Protection Act of 1973, as amended, flood
insurance in an amount as provided above. Pursuant to Section 5.01, any amounts
collected by the Servicer under any such policies other than amounts to be
deposited in the Escrow Account and applied to the restoration or repair of the
Mortgaged Property or Foreclosure Property, or released to the Borrower in
accordance with the Servicer's normal servicing procedures, shall be deposited
in the Collection Account, subject to withdrawal pursuant to Section 5.01. Any
cost incurred by the Servicer in maintaining any such insurance shall not, for
the purpose of calculating distributions to the Issuer or the Noteholders, be
added to the unpaid principal balance of the related Loan, notwithstanding that
the terms of such Loan so permit. It is understood and agreed that no
earthquake or other additional insurance need be required by the Servicer or the
Borrower or maintained on property acquired in respect of the Loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. All such policies shall
be endorsed with standard mortgagee clauses with loss payable to the Servicer,
or upon the direction of the Initial Noteholder to the Indenture Trustee, and
shall provide for at least thirty days prior written notice of any cancellation,
reduction in the amount of, or material change in, coverage to the Servicer. The
Servicer shall not interfere with the Borrower's freedom of choice in selecting
either his insurance carrier or agent, provided, however, that the Servicer
shall not accept any such insurance policies from insurance companies unless
such companies currently reflect a General Policy Rating of B:III or better in
Best's Key Rating Guide and are licensed to do business in the state wherein the
property subject to the policy is located.

      Section 4.09 Maintenance of Mortgage Impairment Insurance Policy.

      In the event that the Servicer shall obtain and maintain a mortgage
impairment or blanket policy issued by an issuer that has a Best rating of B:III
insuring against hazard losses on all of Mortgaged Properties securing the
Loans, then, to the extent such policy provides coverage in an amount equal to
the amount required pursuant to Section 4.08 and otherwise complies with all
other requirements of Section 4.08, the Servicer shall conclusively be deemed to
have satisfied its obligations as set forth in Section 4.08, it being understood
and agreed that such policy may contain a deductible clause, in which case the
Servicer shall, in the event that there shall not have been maintained on the
related Mortgaged Property or Foreclosure Property a policy complying with
Section 4.08, and there shall have been one or more losses which would have been
covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the blanket policy because of such deductible clause.
In connection with its activities as servicer of the Loans, the Servicer agrees
to prepare and present, on behalf of the Issuer and the Noteholders, claims
under any such blanket policy in a timely fashion in accordance with the terms
of such policy. Upon request of the Initial Noteholder, the Servicer shall
cause to be delivered to the Noteholders a certified true copy of such policy
and a statement from the insurer thereunder that such policy shall in no event
be terminated or materially modified without thirty days prior written notice to
the Issuer and the Noteholders.

                                      F-6

<PAGE>

      Section 4.10 Fidelity Bond, Errors and Omissions Insurance.

      The Servicer shall maintain, at its own expense, a blanket fidelity bond
and an errors and omissions insurance policy, with broad coverage with
financially responsible companies on all officers, employees or other persons
acting in any capacity with regard to the Loans to handle funds, money,
documents and papers relating to the Loans. The fidelity bond and errors and
omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond
and shall protect and insure the Servicer against losses, including forgery,
theft, embezzlement, fraud, errors and omissions and negligent acts of such
persons. Such fidelity bond shall also protect and insure the Servicer against
losses in connection with the failure to maintain any insurance policies
required pursuant to this Agreement and the release or satisfaction of a Loan
without having obtained payment in full of the indebtedness secured thereby. No
provision of this Section 4.10 requiring the fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The minimum coverage under any such
bond and insurance policy shall be at least equal to the corresponding amounts
required by Fannie Mae in the Fannie Mae Servicing Guide or by Freddie Mac in
the Freddie Mac Sellers' and Servicers' Guide. Upon request of the Initial
Noteholder, the Servicer shall cause to be delivered to the Noteholders a
certified true copy of the fidelity bond and insurance policy and a statement
from the surety and the insurer that such fidelity bond or insurance policy
shall in no event be terminated or materially modified without thirty days'
prior written notice to the Initial Noteholder.

      Section 4.11 Title, Management and Disposition of Foreclosure Property.

      In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the person designated by the Issuer, or in the
event such person is not authorized or permitted to hold title to real property
in the state where the Foreclosure Property is located, or would be adversely
affected under the "doing business" or tax laws of such state by so holding
title, the deed or certificate of sale shall be taken in the name of such Person
or Persons as shall be consistent with an opinion of counsel obtained by the
Servicer from an attorney duly licensed to practice law in the state where the
Foreclosure Property is located. Any Person or Persons holding such title other
than the Issuer shall acknowledge in writing that such title is being held as
nominee for the benefit of the Issuer and the Noteholders.

      The Servicer shall either itself or through an agent selected by the
Servicer, manage, conserve, protect and operate each Foreclosure Property (and
may temporarily rent the same) in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in the
same manner that similar property in the same locality as the Foreclosure
Property is managed. If a REMIC election is or is to be made with respect to
the arrangement under which the Mortgage Loans and any Foreclosure Property are
held, the Servicer shall manage, conserve, protect and operate each Foreclosure
Property in a manner which does not cause such Foreclosure Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by such REMIC of any "income from
non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or
any "net income from foreclosure property" within the meaning of Section
860G(c)(2) of the Code. The Servicer shall cause each Foreclosure Property to
be inspected promptly upon the acquisition of title thereto and shall cause each
Foreclosure Property to be inspected at least annually thereafter. The Servicer
shall make or cause to be made a written report of each such inspection. Such
reports shall be

                                      F-7

<PAGE>

retained in the Loan File and copies thereof shall be forwarded by the Servicer
to the Issuer. The Servicer shall use its best efforts to dispose of the
Foreclosure Property as soon as possible. The Servicer shall report monthly to
the Issuer and the Noteholders as to the progress being made in selling such
Foreclosure Property, and if, with the written consent of the Initial
Noteholder, a purchase money mortgage is taken in connection with such sale,
such purchase money mortgage shall name the Servicer as mortgagee, and a
separate servicing agreement between the Servicer and the Issuer shall be
entered into with respect to such purchase money mortgage. Notwithstanding the
foregoing, if a REMIC election is made with respect to the arrangement under
which the Loans and the Foreclosure Property are held, such Foreclosure Property
shall be disposed of within three years after the end of the tax year in which
such property becomes Foreclosure Property or such other period as may be
permitted under Section 860G(a)(8) of the Code.

      The final sale by the Servicer of any Foreclosure Property ("REO
Disposition") shall be carried out by the Servicer at such price and upon such
terms and conditions as the Servicer deems to be in the best interest of the
Issuer and the Noteholders only with the prior written consent of the Initial
Noteholder. If as of the date title to any Foreclosure Property was acquired by
the Issuer there were outstanding unreimbursed Servicing Advances with respect
to the Foreclosure Property, the Servicer, upon an REO Disposition of such
Foreclosure Property, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances from Liquidation Proceeds received in connection
with such REO Disposition. The Net Liquidation Proceeds from the REO Disposition
shall be deposited in the Collection Account promptly following receipt thereof
for distribution on the succeeding Payment Date in accordance with Section 5.01.

      Section 4.12 Assumption Agreements.

      The Servicer shall, to the extent it has knowledge of any conveyance or
prospective conveyance by any Borrower of the Mortgaged Property (whether by
absolute conveyance or by contract of sale, and whether or not the Borrower
remains or is to remain liable under the Promissory Note and/or the Mortgage),
exercise its rights to accelerate the maturity of such Loan under any
"due-on-sale" clause applicable thereto; provided, however, that the Servicer
shall not exercise any such rights if prohibited by law from doing so or if the
exercise of such rights would impair or threaten to impair any recovery under
the related Primary Insurance Policy, if any, and shall not be required to
exercise such rights if the transferee of the Mortgaged Property would qualify
for an assumption or substitution under the Servicer's underwriting guidelines.
If the Servicer reasonably believes it is unable under applicable law to enforce
such "due-on-sale" clause, the Servicer shall enter into an assumption agreement
with the person to whom the Mortgaged Property has been conveyed or is proposed
to be conveyed, pursuant to which such person becomes liable under the
Promissory Note and, to the extent permitted by applicable state law, the
Borrower remains liable thereon. Where an assumption is allowed pursuant to this
Section 4.12, the Servicer, with the prior written consent of the insurer under
the Primary Insurance Policy, if any, is authorized to enter into a substitution
of liability agreement with the person to whom the Mortgaged Property has been
conveyed or is proposed to be conveyed pursuant to which the original Borrower
is released from liability and such Person is substituted as Borrower and
becomes liable under the related Promissory Note. Any such substitution of
liability agreement shall be in lieu of an assumption agreement.

      In connection with any such assumption or substitution of liability, the
Servicer shall follow the underwriting practices and procedures of prudent
mortgage lenders in the state in which the

                                      F-8

<PAGE>

related Mortgaged Property is located. With respect to an assumption or
substitution of liability, Loan Interest Rate, the amount of the Monthly
Payment, and the final maturity date of such Promissory Note may not be changed.
The Servicer shall notify the Issuer and the Noteholders that any such
substitution of liability or assumption agreement has been completed and shall
forward to the Custodian the original of any such substitution of liability or
assumption agreement, which document shall be added to the related Loan File and
shall, for all purposes, be considered a part of such Loan File to the same
extent as all other documents and instruments constituting a part thereof. Any
fee collected by the Servicer for entering into an assumption or substitution of
liability agreement shall be deemed additional Servicing Compensation.

      Notwithstanding the foregoing paragraphs of this Section or any other
provision of this Agreement, the Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Loan by operation of law or any assumption which the Servicer
may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 4.12, the term "assumption" is deemed to also include a
sale of the Mortgaged Property subject to the Mortgage that is not accompanied
by an assumption or substitution of liability agreement.

      Section 4.13 Satisfaction of Mortgages and Release of Loan Files.

      Upon the payment in full of any Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer will immediately notify the Issuer and the Initial
Noteholder by a certification of a servicing officer of the Servicer (a
"Servicing Officer"), which certification shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 5.01 have been or will be so deposited, and shall request execution of
any document necessary to satisfy the Loan and delivery to it of the portion of
the Loan File held by Custodian. Upon receipt of a Request for Release and
Receipt, the Custodian shall promptly release the related mortgage documents to
the Servicer in accordance with the Custodial Agreement and the Servicer shall
prepare and process any satisfaction or release. No expense incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Collection Account or the Issuer.

      In the event the Servicer satisfies or releases a Mortgage without having
obtained payment in full of the indebtedness secured by the Mortgage or should
it otherwise prejudice any right the Issuer or the Noteholders may have under
the mortgage instruments, the Servicer, upon written demand, shall remit to the
Issuer the then outstanding principal balance of the related Loan by deposit
thereof in the Collection Account. The Servicer shall maintain the fidelity bond
insuring the Servicer against any loss it may sustain with respect to any Loan
not satisfied in accordance with the procedures set forth herein.

      From time to time and as appropriate for the servicing or foreclosure of
the Loan, including for this purpose collection under any Primary Insurance
Policy, the Custodian shall, upon request of the Servicer and delivery to the
Custodian of a servicing receipt signed by a Servicing Officer, release the
requested portion of the Loan File held by the Custodian to the Servicer. Such
servicing receipt shall obligate the Servicer to return the related Mortgage
documents to the Custodian when the need therefor by the Servicer no longer
exists, unless the Loan has been liquidated and the

                                      F-9

<PAGE>

Liquidation Proceeds relating to the Loan have been deposited in the Collection
Account or the Loan File or such document has been delivered to an attorney, or
to a public trustee or other public official as required by law, for purposes of
initiating or pursuing legal action or other proceedings for the foreclosure of
the Mortgaged Property either judicially or non judicially, and the Servicer has
delivered to the Custodian a certificate of a Servicing Officer certifying as to
the name and address of the Person to which such Loan File or such document was
delivered and the purpose or purposes of such delivery. Upon receipt of a
certificate of a Servicing Officer stating that such Loan was liquidated, the
servicing receipt shall be released by the Custodian to the Servicer.

      Section 4.14 Advances by the Servicer.

      (a) Not later than the close of business on the Business Day preceding
each Remittance Date, the Servicer shall deposit in the Collection Account an
amount equal to all payments not previously advanced by the Servicer, whether or
not deferred pursuant to Section 4.01, of principal (due after the Transfer
Cut-off Date) and interest not allocable to the period prior to the Transfer
Cutoff Date, at the Loan Interest Rate net of the Servicing Fee, which were due
on a Loan and delinquent at the close of business on the related Remittance
Date; provided, however, that the Servicer shall not be required to deposit such
amount if the amount on deposit in the Collection Account on that Remittance
Date (exclusive of any Monthly Advance required to be effective pursuant to this
Section 4.14) is at least sufficient to fund in full the items described in
Sections 5.01(c)(3)(i) through 5.01(c)(3)(v) hereof on the related Payment Date,
and, if the amount on deposit in the Collection Account is less than the sum of
such items, the Servicer shall only be required to deposit an amount equal to
the shortfall. The obligation of the Servicer to make such Monthly Advances is
mandatory, notwithstanding any other provision of this Agreement, and, with
respect to any Loan or Foreclosure Property, shall continue until a Final
Recovery Determination in connection therewith; provided that, notwithstanding
anything herein to the contrary, no Monthly Advance shall be required to be made
hereunder by the Servicer if such Monthly Advance would, if made, constitute a
Nonrecoverable Monthly Advance. The determination by the Servicer that it has
made a Nonrecoverable Monthly Advance or that any proposed Monthly Advance, if
made, would constitute a Nonrecoverable Monthly Advance, shall be evidenced by
an Officers' Certificate delivered to the Issuer and the Indenture Trustee.

      (b) The Servicer will pay all out-of-pocket costs and expenses incurred in
the performance of its servicing obligations including, but not limited to, the
cost of (i) Preservation Expenses, (ii) any enforcement or judicial proceedings,
including foreclosures, (iii) inspection fees and expenses and (iv) the
management and liquidation of Foreclosure Property but is only required to pay
such costs and expenses to the extent the Servicer reasonably believes such
costs and expenses will increase Net Liquidation Proceeds on the related Loan.
Each such amount so paid will constitute a "Servicing Advance." The Servicer may
recover Servicing Advances (x) from the Borrowers to the extent permitted by the
Loans, from Liquidation Proceeds realized upon the liquidation of the related
Loan and (y) as provided in Sections 5.01(c)(1)(ii) or 5.01(c)(3)(i) hereof. In
no case may the Servicer recover Servicing Advances from principal and interest
payments on any Loan or from any amounts relating to any other Loan except as
provided pursuant to Sections 5.01(c)(1)(ii) or 5.01(c)(3)(i) hereof.

      Section 4.15 Servicing Compensation.

                                      F-10
<PAGE>

      As compensation for its services hereunder, the Servicer shall, subject to
Section 5.01(c), be entitled to withdraw from the Collection Account or to
retain from interest payments on the Loans the amounts provided for as the
Servicer's Servicing Fee. Additional servicing compensation in the form of
assumption fees, non-sufficient fund fees, modification fees, substitution fees
and other ancillary income, as provided in Section 4.12, and late payment
charges or otherwise shall be retained by the Servicer to the extent not
required to be deposited in the Collection Account. The Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder and shall not be entitled to reimbursement therefor except
as specifically provided for.

      Section 4.16 Notification of Adjustments.

      On each Adjustment Date, the Servicer shall make interest rate adjustments
for each ARM in compliance with the requirements of the related Mortgage and
Promissory Note. The Servicer shall execute and deliver the notices required by
each Mortgage and Promissory Note regarding interest rate adjustments. The
Servicer also shall provide timely notification to the Noteholders of all
applicable data and information regarding such interest rate adjustments and the
Servicer's methods of implementing such interest rate adjustments. Upon the
discovery by the Servicer or the any Noteholder that the Servicer has failed to
adjust a Loan Interest Rate or a Monthly Payment pursuant to the terms of the
related Promissory Note and Mortgage, the Servicer shall immediately deposit in
the Collection Account from its own funds the amount of any interest loss caused
thereby without reimbursement therefor.

      Section 4.17 Statement as to Compliance.

      The Servicer will deliver to the Issuer, the Indenture Trustee and the
Initial Noteholder not later than 90 days following the end of each fiscal year
of the Servicer, which as of the Closing Date ends on April 30, an Officers'
Certificate stating, as to each signatory thereof, that (i) a review of the
activities of the Servicer during the preceding year and of performance under
this Agreement has been made under such officers' supervision and (ii) to the
best of such officers' knowledge, based on such review, the Servicer has
fulfilled all of its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof.

      Section 4.18 Independent Public Accountants' Servicing Report.

      Not later than 90 days following the end of each fiscal year of the
Servicer, the Servicer at its expense shall cause a firm of independent public
accountants (which may also render other services to the Servicer) which is a
member of the American Institute of Certified Public Accountants to furnish a
statement to the Issuer, the Indenture Trustee and the Initial Noteholder to the
effect that such firm has examined certain documents and records relating to the
servicing of the Loans under this Agreement and that, on the basis of such
examination conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers, such firm confirms that such servicing
has been conducted in compliance with such pooling and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers
requires it to report.

      Section 4.19 Access to Certain Documentation.

                                      F-11
<PAGE>

      The Servicer shall provide to the Office of Thrift Supervision, the FDIC
and any other federal or state banking or insurance regulatory authority that
may exercise authority over the Issuer or any Noteholder access to the
documentation regarding the Loans serviced by the Servicer required by
applicable laws and regulations. Such access shall be afforded without charge,
but only upon reasonable request and during normal business hours at the offices
of the Servicer. In addition, access to the documentation will be provided to
the Issuer or any Noteholder and any Person identified to the Servicer by the
Issuer or any Noteholder without charge, upon reasonable request during normal
business hours at the offices of the Servicer.

      Section 4.20 Reports and Returns to be Filed by the Servicer.

      The Servicer shall file information reports with respect to the receipt of
mortgage interest received in a trade or business, reports of foreclosures and
abandonments of any Mortgaged Property and information returns relating to
cancellation of indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code. Such reports shall be
in form and substance sufficient to meet the reporting requirements imposed by
such Sections 6050H, 6050J and 6050P of the Code.

      Section 4.21 Compliance with REMIC Provisions.

      If a REMIC election has been made with respect to the arrangement under
which the Loans and Foreclosure Property are held, the Servicer shall not take
any action, cause the REMIC to take any action or fail to take (or fail to cause
to be taken) any action that, under the REMIC Provisions, if taken or not taken,
as the case may be, could (i) endanger the status of the REMIC as a REMIC or
(ii) result in the imposition of a tax upon the REMIC (including but not limited
to the tax on "prohibited transactions" as defined in Section 860F(a)(2) of the
Code and the tax on "contributions" to a REMIC set forth in Section 860G(d) of
the Code) unless the Servicer has received an Opinion of Counsel (at the expense
of the party seeking to take such action) to the effect that the contemplated
action will not endanger such REMIC status or result in the imposition of any
such tax.

      Section 4.22 Subservicing Agreements Between Servicer and Subservicers.

      The Servicer may enter into Subservicing Agreements for any servicing and
administration of Loans with any institution which is in compliance with the
laws of each state necessary to enable it to perform its obligations under such
Subservicing Agreement and is an Eligible Servicer. The Servicer shall give
notice to the Indenture Trustee and the Initial Noteholder of the appointment of
any Subservicer which is not an Affiliate of the Servicer and shall furnish to
the Indenture Trustee and the Initial Noteholder a copy of the Subservicing
Agreement (along with any modifications thereto) between the Servicer and any
Subservicer that is not an Affiliate of the Servicer. For purposes of this
Agreement, the Servicer shall be deemed to have received payments on Loans when
any Subservicer has received such payments. Any such Subservicing Agreement
shall be consistent with and not violate the provisions of this Agreement.

      Section 4.23 Successor Subservicers.

                                      F-12
<PAGE>

      Upon notice to the Indenture Trustee and the Initial Noteholder (except if
the Subservicer is an Affiliate of the Servicer), the Servicer shall be entitled
to terminate any Subservicing Agreement in accordance with the terms and
conditions of such Subservicing Agreement and to either itself directly service
the related Loans or enter into a Subservicing Agreement with a successor
Subservicer which qualifies under Section 4.22.

      Section 4.24 Liability of Servicer.

      The Servicer shall not be relieved of its obligations under this Agreement
notwithstanding any Subservicing Agreement or any of the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or otherwise, and the Servicer shall be obligated to the same extent
and under the same terms and conditions as if it alone were servicing and
administering the Loans. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer and nothing contained in such Subservicing Agreement shall be deemed
to limit or modify this Agreement. The Trust shall not indemnify the Servicer
for any losses due to the Servicer's negligence.

      Section 4.25 No Contractual Relationship Between Subservicer and Indenture
                   Trustee or the Securityholders.

      Any Subservicing Agreement and any other transactions or services relating
to the Loans involving a Subservicer shall be deemed to be between the
Subservicer and the Servicer alone and no party hereto nor the Securityholders
shall be deemed parties thereto and shall have no claims, rights, obligations,
duties or liabilities with respect to any Subservicer except as set forth in
Section 4.26.

      Section 4.26 Assumption or Termination of Subservicing Agreement by
                   Successor Servicer.

      In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
a successor Servicer pursuant to Section 9.02, it is understood and agreed that
the Servicer's rights and obligations under any Subservicing Agreement then in
force between the servicer and a Subservicer may be assumed or terminated by the
successor Servicer at its option without the payment of any fee (notwithstanding
any contrary provision in any Subservicing Agreement).

      The Servicer shall, upon request of the successor Servicer, but at the
expense of the Servicer, deliver to the assuming parry documents and records
relating to each Subservicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effect the
orderly and efficient transfer of the Subservicing Agreements to the assuming
party, without the payment of any fee by the successor Servicer, notwithstanding
any contrary provision in any Subservicing Agreement.

                                      F-13
<PAGE>

                                    EXHIBIT G

                    FORM OF QUARTERLY COMPLIANCE CERTIFICATE

                         OPTION ONE MORTGAGE CORPORATION

                                                  Dated:_______________________

      Pursuant to that certain SALE AND SERVICING AGREEMENT, dated as of April
1, 2000 (the "Agreement"), among OPTION ONE OWNER TRUST 2001-2 (the "Issuer"),
OPTION ONE LOAN WAREHOUSE CORPORATION (the "Depositor"), OPTION ONE MORTGAGE
CORPORATION (the "Servicer" or "Option One") and WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION (the "Indenture Trustee"), [name], [title] of Option One,
do hereby certify that Option One is in compliance with all provisions and terms
of the Agreement as of [insert compliance reporting period], including, but not
limited to, those provisions and terms listed below. Capitalized terms used
herein and not otherwise defined shall have the meanings given such terms in the
Agreement.

      1. Pursuant to Section 9.01(a)(6) "Servicer Events of Default":

      (a) Option One must maintain a minimum "Tangible Net Worth" (defined and
determined in accordance with GAAP and exclusive of (i) any loans outstanding to
any officer or director of Option One or its Affiliates and (ii) any intangibles
(other than originated or purchased servicing rights)) of $200 million as of any
day.

                    IN COMPLIANCE ____ NOT IN COMPLIANCE ____

      (b) Option One may not exceed a maximum leverage ratio (the ratio of total
liabilities (exclusive of non-recourse debt), determined in accordance with
GAAP, to its Tangible Net Worth) of 6.0x as of any day.

                    IN COMPLIANCE _____ NOT IN COMPLIANCE ____

      (c) Option One may not exceed a maximum non-warehouse leverage ratio (the
ratio of (i) the sum of (A) all funded debt (excluding debt from H&R Block or
any of its Affiliates and all non-recourse debt) less (B) 100% of its mortgage
loan inventory held for sale less (C) 80% of servicing advance receivables
(determined and valued in accordance with GAAP) to (ii) Tangible Net Worth) of
0.50x at any time.

                    IN COMPLIANCE ______ NOT IN COMPLIANCE _________

      (d) Option One will maintain a minimum liquidity facility (defined as a
committed, unsecured, non-amortizing liquidity facility from H&R Block, not to
mature (scheduled or accelerated) prior to the Maturity Date) in an amount no
less than $150 million. Such facility from

                                       G-1
<PAGE>

H&R Block cannot contain covenants or termination events more restrictive than
the covenants or termination events contained in the Agreement.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE _______

      2. Pursuant to the definition of Rapid Amortization Trigger in the
Agreement :

      (a) The aggregate Principal Balance of all Loans that are 30 to 59 days
Delinquent as of any Determination Date divided by the Pool Principal Balance as
of such Determination Date is less than 7%.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE ________

      (b) The aggregate Principal Balance of all Loans that are 60 to 89 days
Delinquent as of any Determination Date divided by the Pool Principal Balance as
of such Determination Date is less than 3%.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE ______

      (c) (x) The aggregate Liquidated Loan Losses for the three calendar months
preceding any Determination Date divided by (y) the average Pool Principal
Balance of the Loans during such three calendar months (measured for each
calendar month at the end of the Remittance Period) is less than 0.25%.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE _______

      (d) The Net Portfolio Yield averaged for any three consecutive months is
greater than 1.75%. Net Portfolio Yield is defined as the annualized percentage
equivalent of a fraction: (i) the numerator of which is equal to accrued
interest on the Loans (excluding accrued interest on Loans Delinquent over 30
days) for the related Accrual Period, less all interest, fees and expenses due
to the Noteholders and less any Servicing Fees, and (ii) the denominator of
which is the average Note Principal Balance for such Accrual Period plus the
product of (a) 10% minus the Unfunded Transfer Obligation Percentage times (b)
the aggregate average Collateral Values for such Accrual Period.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE _______

      (e) The Delinquency Ratio is less than 15%. The Delinquency Ratio is
defined as the percentage equivalent of a fraction: (i) the numerator of which
is equal to the aggregate outstanding Principal Balance of all Loans that are
Delinquent 60 days or more, including Foreclosure Property, and (ii) the
denominator of which is equal to the average aggregate outstanding Principal
Balance of all Loans for the three immediately preceding calendar months as of
the date of determination.

                 IN COMPLIANCE _______ NOT IN COMPLIANCE _______

      (f) The Maximum Cumulative Loss Ratio has not been exceeded. Maximum
Cumulative Loss Ratio is defined as, with respect to all mortgage loans
originated in the same calendar year (each year's loans being considered as a
single pool) and serviced by Option One (whether or not

                                      G-2
<PAGE>

such mortgage loans are sold or contributed to the Depositor), beginning with
mortgage loans originated in 1997 (measured on a static pool basis), the
cumulative losses on each such pool may not exceed 1.50% in the first year,
2.25% in the second year, 2.85% in the third year, 3.60% in the fourth year and
4.25% thereafter.

                 IN COMPLIANCE __________ NOT IN COMPLIANCE _______

                                      G-3
<PAGE>

                                 CALCULATIONS:

<TABLE>
<S>                                                   <C>                   <C>
1(a) TANGIBLE NET WORTH:                              Actual                Required

GAAP Net Worth:                                       $
less: Goodwill:                                       $
less: Officer / Director Loans                        $
TANGIBLE NET WORTH                                    $                     $200,000,000

1(b) MAXIMUM LEVERAGE RATIO:
                                                      Actual                Required
Total Liabilities                                     $
less: non-recourse debt                               $
ADJUSTED TOTAL LIABILITIES                            $
divided by: Tangible Net Worth (from
above)                                                $

      LEVERAGE RATIO                                  _._x                  6.0x

1(c) MAXIMUM NON-WAREHOUSE DEBT
RATIO:

Total Funded Debt                                     Actual                Required
less: debt payable to H&R Block                       $
less: non-recourse debt                               $
ADJUSTED FUNDED DEBT                                  $
less: 100% mortgage loan inventory                    $
less: 80% of servicing advance
receivables                                           $
TOTAL NON-WAREHOUSE DEBT                              $
divided by: Tangible Net Worth (from
above)                                                $

NON-WAREHOUSE DEBT LEVERAGE RATIO                                           _._x 0.50x

1(d) MINIMUM LIQUIDITY FACILITY:
                                                      Actual                Required
H&R Block Facility                                    $                     $150,000,000
</TABLE>

                                      G-4
<PAGE>

      IN WITNESS WHEREOF, I have signed this certificate and affixed the seal of
Option One.

Date: _____________________, 200_
                                              By: __________________________
                                              Name:
                                              Title:
(SEAL]

      I, ___________________, ____________ of Option One, do hereby certify that
________________ is the duly elected or appointed, qualified and acting of
Option One, and the signature set forth above is the genuine signature of such
officer on the date hereof.

                                                       By: ____________________
                                                       Name:
                                                       Title:

                                      G-5
<PAGE>

                                    EXHIBIT H

                              CAPITAL ADEQUACY TEST

*For each field multiply the HRB% by the Balance Sheet Amount for Required
Capital

<TABLE>
<CAPTION>
                                                   HRB TEST      BALANCE SHEET    REQUIRED CAPITAL
<S>                                                <C>           <C>              <C>
Unrestricted Cash and Equivalents                     0%
Restricted Cash                                       0%
Loans Held for Sale                                   9%
Servicing Advances                                   10%
Beneficial Interests in trusts                       10%
Subprime Mortgage NIM Residual Interest              60%
Real Estate Held for Sale                            10%
Furniture and Equipment                               0%
Mortgage Servicing Rights                            25%
Prepaid Expenses and Other Assets                    10%
Accrued interest receivable                          10%
Receivable from H&R Block                             0%
Intangibles and goodwill                            100%
Deferred Tax Assets                                  10%
Derivative Assets                                    10%
          TOTAL REQUIRED CAPITAL
</TABLE>

Total Owners Equity on Balance Sheet Date
Less: Receivables from H&R Block

Adjusted Net Worth ________________________

Adjusted Net Worth divided by Required Capital = Ratio for Capital Adequacy Test

                                       H-i
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>6
<FILENAME>c91685exv10w46.txt
<DESCRIPTION>AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.46

                              AMENDED AND RESTATED

                             NOTE PURCHASE AGREEMENT

                                      among

                         OPTION ONE OWNER TRUST 2002-3,
                                 as the Company,

                         UBS REAL ESTATE SECURITIES INC.
                              as the Note Purchaser

                                       and

                        OPTION ONE MORTGAGE CORPORATION,
                             as the Loan Originator

                           Dated as of March 18, 2005

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                           Page
<S>                                                                                                        <C>
ARTICLE I DEFINITIONS ..................................................................................     2

      Section 1.1        Definitions....................................................................     2
      Section 1.2        Usage of Terms.................................................................    18

ARTICLE II COMMITMENT AND ADVANCES......................................................................    18

      Section 2.1        Commitment to Purchase.........................................................    18
      Section 2.2        Minimum Usage..................................................................    19
      Section 2.3        Principal Amount of Secured Notes..............................................    19
      Section 2.4        Procedures for Making Advances.................................................    19
      Section 2.5        Interest Rate..................................................................    21
      Section 2.6        Interest Payments..............................................................    21
      Section 2.7        Maximum Interest Rate..........................................................    22
      Section 2.8        Funds; Manner of Payment.......................................................    22
      Section 2.9        Issuance, Registration and Transfer of Secured Notes...........................    22
      Section 2.10       Principal Payments; Payment on Maturity Date...................................    23
      Section 2.11       Margin Option..................................................................    24

ARTICLE III SECURITY ...................................................................................    25

      Section 3.1        Lien...........................................................................    25
      Section 3.2        Further Assurances.............................................................    26
      Section 3.3        Power of Attorney..............................................................    26
      Section 3.4        Duty of Care...................................................................    26
      Section 3.5        Earnings on Collateral.........................................................    27
      Section 3.6        Release of Collateral..........................................................    27

ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................................    28

      Section 4.1        Company's Representations and Warranties; Representations and Warranties
                         Regarding the Loans............................................................    28
      Section 4.2        OOMC's Representations and Warranties..........................................    31

ARTICLE V BREACH OF REPRESENTATION OR WARRANTY..........................................................    34

      Section 5.1        General........................................................................    34
      Section 5.2        Sole Remedy....................................................................    35

ARTICLE VI CONDITIONS PRECEDENT TO ADVANCES.............................................................    35

      Section 6.1        Receipt by the Note Purchaser of Certain Documents.............................    35
      Section 6.2        Conditions Precedent to all Advances and Substitutions.........................    38
      Section 6.3        Additional Collateral..........................................................    40

ARTICLE VII COVENANTS ..................................................................................    40
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                        <C>
      Section 7.1        Affirmative Covenants..........................................................    40
      Section 7.2        Negative Covenants.............................................................    44

ARTICLE VIII INDEMNIFICATION AND REIMBURSEMENT..........................................................    45

      Section 8.1        Indemnification................................................................    45
      Section 8.2        Taxes and Other Governmental Charges...........................................    46
      Section 8.3        Reimbursement of Expenses......................................................    46
      Section 8.4        Survival.......................................................................    47

ARTICLE IX EVENTS OF DEFAULT............................................................................    47

      Section 9.1        Events of Default..............................................................    47

ARTICLE X REMEDIES .....................................................................................    50

      Section 10.1       Acceleration; Action Regarding Collateral......................................    50
      Section 10.2       Deficiency.....................................................................    51
      Section 10.3       Private Sale...................................................................    51
      Section 10.4       Default Rate of Interest.......................................................    51
      Section 10.5       Application of Proceeds........................................................    52
      Section 10.6       Payments on Collateral to the Company..........................................    52
      Section 10.7       Cross-Collateralization; Right of Set-Off......................................    52

ARTICLE XI MISCELLANEOUS................................................................................    53

      Section 11.1       Amendment......................................................................    53
      Section 11.2       Governing Law..................................................................    53
      Section 11.3       Notices........................................................................    53
      Section 11.4       Severability of Provisions.....................................................    55
      Section 11.5       No Waiver; Cumulative Remedies.................................................    55
      Section 11.6       Termination....................................................................    55
      Section 11.7       Assignment.....................................................................    56
      Section 11.8       Binding Effect; Third-Party Beneficiaries......................................    56
      Section 11.9       Merger and Integration.........................................................    56
      Section 11.10      No Petition....................................................................    56
      Section 11.11      Cooperation....................................................................    56
      Section 11.12      Resales of Secured Notes.......................................................    57
      Section 11.13      Qualified Institutional Buyer..................................................    57
      Section 11.14      Time...........................................................................    57
      Section 11.15      Headings.......................................................................    57
      Section 11.16      Exhibits.......................................................................    57
      Section 11.17      Counterparts...................................................................    57
      Section 11.18      No Recourse to Owner Trustee...................................................    58
</TABLE>

                                       ii

<PAGE>

                                    EXHIBITS

<TABLE>
<S>                                                                                                <C>
SCHEDULE I  Collateral Loan Schedule...........................................................    S-1
EXHIBIT A   [RESERVED].........................................................................    A-1
EXHIBIT B   Representations and Warranties Regarding the Loans.................................    B-1
EXHIBIT C   Form of Notice of Borrowing........................................................    C-1
EXHIBIT D   Underwriting Standards.............................................................    D-1
EXHIBIT E   Capital Adequacy Test..............................................................    E-1
</TABLE>

                                      iii

<PAGE>

            AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated as of March 18,
2005, between Option One Owner Trust 2002-3, a Delaware business trust (the
"Company"), and UBS REAL ESTATE SECURITIES INC. a Delaware corporation (the
"Note Purchaser"), and Option One Mortgage Corporation, a California corporation
("OOMC", or the "Loan Originator").

                                   WITNESSETH:

            WHEREAS, pursuant to the Sale and Servicing Agreement or one or more
transactions under the Disposition Agreement, the Company is expected to
purchase from Option One Owner Trust 2001-1A, a Delaware business trust, Option
One Owner Trust 2001-1B, a Delaware business trust, Option One Owner Trust
2001-2, a Delaware business trust or Option One Loan Warehouse Corporation, a
California corporation ("OOLWC") (any of the foregoing, in its capacity as a
seller of Loans to the Company, the "Immediate Transferor"), from time to time
(i) certain Loans that are acquired by the Immediate Transferor (if other than
OOLWC) from OOLWC, which Loans were originally acquired by OOLWC from Option One
Mortgage Corporation ("OOMC", or the "Loan Originator"), and (ii) the Other
Assets relating to such Loans; and

            WHEREAS, the Company desires to obtain a series of advances (each,
an "Advance") from the Note Purchaser to be evidenced by one or more promissory
notes substantially in the form of Exhibit A to the Facility Administration
Agreement (each, a "Secured Note") to finance in whole or in part the purchase
of such Loans; and

            WHEREAS, to induce the Note Purchaser to make one or more Advances,
the Company has agreed, among other inducements set forth herein, to grant to
the Note Purchaser a first priority perfected Lien in and on all of the Loans,
together with the related Other Assets and other Collateral, all of which
collectively constitute the Collateral to secure the Advances; and OOMC has
agreed, among other inducements set forth herein, to make directly to the Note
Purchaser certain of the representations and warranties set forth herein; and

            WHEREAS, a list of the Loans to be included in the Collateral on the
date of the Initial Advance is set forth in Schedule I hereto (the "Collateral
Schedule" or "Loan Schedule"), which Collateral Schedule shall be supplemented
as and when additional Loans are purchased and acquired by the Company from the
Loan Originator pursuant to the Sale and Servicing Agreement with the proceeds
of the issuance of one or more additional or substitute Secured Notes;

            WHEREAS, this Amended and Restated Note Purchase Agreement amends
and restates the Note Purchase Agreement dated as of July 2, 2002, between the
parties hereto, as amended;

            NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Company, the Note Purchaser and OOMC hereby
agree as follows:

<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

            Section 1.1 Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below. In addition,
capitalized terms used herein and not defined herein shall have their respective
meanings as set forth in the Sale and Servicing Agreement, the Custodial
Agreement or the Facility Administration Agreement.

            "Accepted Servicing Practices" shall mean the Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general shall conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Loans in the jurisdictions in which the
related Mortgaged Properties are located and which shall (i) give due
consideration to the Noteholders' reliance on the Servicer, and (ii) comply in
all material respects with all applicable laws, rules, regulations and orders.

            "Actual Note Issuance Proceeds" shall have the meaning as described
in Section 2.4(d).

            "Act of Insolvency" shall mean, with respect to the Company, the
Immediate Transferor, OOLWC, OOMC or any other Affiliate of the Company, (i) the
commencement by such Person as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, moratorium, dissolution,
delinquency or similar law, or such Person seeking the appointment or election
of a receiver, conservator, trustee, custodian or similar official for such
Person or any substantial part of its property, or the convening of any meeting
of creditors for purposes of commencing any such case or proceeding or seeking
such an appointment or election, (ii) the commencement of any such case or
proceeding against such Person, or the seeking by another person of any such
appointment or election, which (A) is consented to or not timely contested by
such Person, or (B) results in the entry of an order for relief, such as an
appointment or election, the issuance of such a protective decree or the entry
of an order having a similar effect, or (C) is not dismissed within 60 days
(unless such Person provides to the Note Purchaser evidence reasonably
satisfactory to the Note Purchaser that such case or proceeding will be promptly
dismissed), (iii) the making by such Person of a general assignment for the
benefit of creditors, (iv) the failure by such Person generally to pay its debts
as they become due or (v) the admission in writing by such Person of its
inability to pay its debts as they become due.

            "Advance Amount" shall mean, with respect to any Advance, the
initial amount of such Advance, which shall be equal to the sum of (i) the
aggregate Collateral Value of the Loans Pledged hereunder in connection with the
making of such Advance, and (ii) the aggregate Market Value of all Interim
Collateral, if any, Pledged hereunder in connection with the making of such
Advance, minus, if applicable, any portion of the foregoing sum that, if
advanced, would cause the aggregate Principal Balances of the Secured Notes to
exceed the Borrowing Base.

                                        2

<PAGE>

            "Advance Date" shall mean the date upon which an Advance is made
available as specified in Section 2.4, which date shall be a Business Day.

            "Advance Rate" shall have the meaning specified in the Pricing Side
Letter.

            "Affiliate" shall mean, with respect to any specified Person, any
other Person controlling, controlled by or under common control with such
Person. For the purposes of this definition, "control" means the power to direct
the management and policies of a Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

            "Affiliate Transfer Agreement" shall mean each agreement between (i)
OOMC, as "seller," and OOLWC, as "purchaser," (ii) if the Immediate Transferor
is not OOLWC, OOLWC, as "seller," and the Immediate Transferor, as "purchaser",
or (iii) between OOMC or any other Affiliate of the Company, as "seller" and any
Affiliate of the Company other than OOMC, as "purchaser," for the purchase and
sale or other transfer of Loans that are Collateral for the Secured Notes, and
includes each Mortgage Loan Purchase and Contribution Agreement.

            "Agreement" shall mean this Amended and Restated Note Purchase
Agreement, as amended, supplemented or otherwise modified and in effect from
time to time, including any Schedules and Exhibits hereto.

            "Applicable Limitations" shall have the meaning specified in the
Pricing Side Letter.

            "assignee" (or any word of similar import) shall mean, with respect
to any Person, any immediate or mediate assignee, pledgee or other transferee of
such Person.

            "Basic Documents" shall mean, collectively, this Agreement, the
Secured Notes, the Loan Purchase and Contribution Agreement, the Custodial
Agreement, the Facility Administration Agreement, the Sale and Servicing
Agreement, each other Transfer Agreement, if any, the Disposition Agreement, the
Company Administration Agreement, the Trust Agreement and any and all other
agreements, certificates, instruments and other documents executed and delivered
in connection herewith and therewith or in connection with the transactions
contemplated hereby and thereby.

            "Bankruptcy Code" shall mean Title 11 of the United States Code, 11
U.S.C. Sections. 101 et seq., as amended, supplemented or otherwise modified and
in effect from time to time.

            "Borrowing Base" shall mean, as of any date of determination, the
sum of: (i) the aggregate Collateral Values of all Loans Pledged as such date;
(ii) the Market Value of all related Interim Collateral on such date; and (iii)
the amount of principal collections then on deposit in the Collection Account
with respect to all Loans.

                                       3

<PAGE>

            "Business Day" shall mean any day other than a Saturday, Sunday, or
any other day on which banks in New York, California, Minnesota, Maryland or
Pennsylvania are authorized or required by law to close.

            "Change in Control" shall mean (i) OOMC's failure to be a
wholly-owned Subsidiary of H&R Block Inc., (ii) OOLWC's failure to be a
wholly-owned Subsidiary (direct or indirect) of OOMC, or (iii) for an Immediate
Transferor other than OOLWC, the Immediate Transferor's failure to be a
wholly-owned Subsidiary of OOLWC.

            "Chief Executive Office" shall have the meaning assigned to such
term in Article 9 of the UCC.

            "Closing Date" shall mean July 8, 2002.

            "Collateral" shall mean all of the Company's right, title and
interest in and to: (i) all Loans purchased or acquired by the Company from time
to time, whether pursuant to the Sale and Servicing Agreement or otherwise
(including all Qualified Substitution Loans substituted pursuant to Section
5.1), (ii) all Related Security and Collections relating to such Loans, (iii)
all Interim Collateral, (iv) the Sale and Servicing Agreement (including the
right to cause the Loan Originator to repurchase Loans as provided in Section
3.06 of the Sale and Servicing Agreement and including the right to terminate
all of OOMC's rights and obligations as the Servicer as provided in Section 9.01
of the Sale and Servicing Agreement), (v) the Loan Purchase and Contribution
Agreement, (vi) all other Affiliate Transfer Agreements and other Transfer
Agreements, if any, relating to the Loans purchased or acquired by the Company
from time to time (including all rights and remedies provided thereunder in the
event of a breach of representation or warranty by the related transferors),
(vii) all other Basic Documents now or at any time hereafter in effect, (viii)
all right, title and interest of the Company, and of each of OOLWC and the Loan
Originator (to the extent assigned to the Company) in and under the Basic
Documents, including, without limitation, the obligations of the Loan Originator
under the Loan Purchase and Contribution Agreement pursuant to which OOLWC
acquired the Loans from the Loan Originator, and (ix) all Proceeds of any and
all of the foregoing (including all monies, investments and other properties
held from time to time in the Collection Account or any other account
established pursuant to any other Basic Document).

            "Collateral Schedule" or "Loan Schedule" shall mean, with respect to
any Advance, the list of all of the Loans and Interim Collateral, if any,
Pledged in connection with the making of such Advance, and, where the context
requires, shall mean all such Collateral Schedules collectively, as amended from
time to time pursuant to the Basic Documents. The Collateral Schedule shall be
transmitted either electronically or in hard copy, and shall set forth the
following information with respect to each Loan so Pledged:

            (i)   the Loan Originator's Loan identifying number;

            (ii)  the Mortgagor's name and social security number;

                                       4

<PAGE>

            (iii)  the street address of the Mortgaged Property, including the
                   state and zip code;

            (iv)   a code indicating whether the Mortgaged Property was
                   represented by the Mortgagor as being owner-occupied on the
                   date of origination;

            (v)    the type of Residential Dwelling constituting the Mortgaged
                   Property;

            (vi)   the months to maturity at origination, based on the original
                   amortization schedule;

            (vii)   the loan-to-value ratio at origination;

            (viii)  the rate of interest in effect on the Advance Date;

            (ix)    the day of the month on which the first monthly payment was
                    due, and, if different, the day of the month on which
                    monthly payments are due as of the Advance Date;

            (x)     the stated maturity date;

            (xi)    the amount of the monthly payment due at origination;

            (xii)   the amount of the monthly payment due on the first due date
                    after the Advance Date;

            (xiii)  the interest paid-through date;

            (xiv)   the last monthly payment date on which any portion of the
                    monthly payment was applied to the reduction of principal;

            (xv)    the original principal amount;

            (xvi)   the UPB as of the close of business on the notice date;

            (xvii)  if the Loan is an adjustable-rate loan, the initial
                    adjustment date thereunder, including the look-back period;

            (xviii) if the Loan is an adjustable-rate loan, the gross margin
                    over the applicable interest rate index;

            (xix)   a code indicating the purpose of the Loan, as indicated by
                    the Mortgagor (i.e., purchase financing, rate/term
                    refinancing or cash-out refinancing);

            (xx)    if the Loan is an adjustable-rate loan, the maximum interest
                    rate;

                                       5

<PAGE>

            (xxi)     if the Loan is an adjustable-rate loan, the minimum
                      interest rate;

            (xxii)    the interest rate at origination;

            (xxiii)   if the Loan is an adjustable-rate loan, the periodic rate
                      cap and the maximum adjustment in the interest rate that
                      may be made on the first adjustment date immediately
                      following the Advance Date;

            (xxiv)    a code indicating the documentation program (i.e., full
                      documentation, limited documentation or stated income);

            (xxv)     if the Loan is an adjustable-rate loan, the applicable
                      interest rate index to which the gross margin is added,
                      including the source of such index;

            (xxvi)    if the Loan is an adjustable-rate loan, the first
                      adjustment date thereunder to occur after the Advance
                      Date;

            (xxvii)   the risk grade;

            (xxviii)  any risk upgrade;

            (xxix)    the appraised value of the Mortgaged Property at
                      origination;

            (xxx)     if different from the appraised value, the dollar value of
                      the review appraisal of the Mortgaged Property at
                      origination;

            (xxxi)    the sale price of the Mortgaged Property, if applicable;

            (xxxii)   the product type code (e.g., 3/27, 2/28, balloon, etc.);

            (xxxiii)  a code indicating whether the Loan is a first-lien loan or
                      a second-lien loan;

            (xxxiv)   if the Loan is a second-lien loan, the outstanding
                      principal balance of the first lien on the date of
                      origination of such Loan;

            (xxxv)    if the Loan is a second-lien loan, the combined
                      loan-to-value ratio of such Loan and the first lien to
                      which it is subject, as of the origination date of such
                      Loan;

            (xxxvi)   the prepayment penalty code;

            (xxxvii)  the prepayment penalty term;

            (xxxviii) the late charge;

            (xxxix)   the rounding code (next highest or nearest 0.125%); and

                                       6

<PAGE>

            (xl)     the Mortgagor's FICO score, if any;

            (xli)    if there is mortgage insurance with respect to the Loan, a
                     code so indicating;

            (xlii)   the date the Loan was originated;

            (xliii)  if the Loan is negatively amortizing, a code so indicating;

            (xliv)   if the Loan is a Section 32 loan, a code so indicating;

            (xlv)    the Mortgagor's debt to income ratio;

            (xlvi)   the number of units included in the Mortgaged Property;

            (xlvii)  the remaining term of the Loan, stated in months;

            (xlviii) the age of the Loan, in months;

            (xlix)   the first monthly payment date under the Loan;

            (l)      if the Loan is an adjustable-rate loan, the frequency at
                     which the interest rate is adjusted;

            (li)     if the Loan is an adjustable-rate loan, the frequency at
                     which the monthly payment amount is adjusted;

            (lii)    if the Loan is an adjustable-rate loan, the next reset date
                     to occur after the Advance Date;

            (liii)   if the Loan is an adjustable-rate loan, the maximum change
                     that may be made in the interest rate on any adjustment
                     date; and

            (liv)    if the loan is a Wet Funded Loan or not

The Collateral Schedule delivered with respect to any Advance Date shall also
set forth the following information with respect to the Loans set forth thereon:
(1) the number of Loans set forth thereon; (2) the aggregate UPB of all such
Loans as of the close of business on the related notice date; (3) the weighted
average interest rate of all such Loans as of the related notice date; (4) the
weighted average months to maturity of all such Loans; and (5) the weighted
average loan-to-value ratio of all such Loans.

            "Collateral Value" shall have the meaning specified in the Pricing
Side Letter.

            "Collection Account" shall mean the account denominated as such that
is established and maintained in the name of the Facility Administrator pursuant
to the terms of the Facility Administration Agreement for the deposit by the
Servicer (subject to the provisions of the Disposition Agreement) of monthly
remittances of principal and

                                       7

<PAGE>

interest, prepayments of principal (whether full or partial) received with
respect to Loans, liquidation proceeds and other amounts related to Loans.

            "Collections" shall mean, with respect to any Loan, all cash
collections and other cash proceeds (other than Escrow Payments) related to a
Loan received by the Servicer or any other Person on or after the applicable
Advance Date, including all principal and interest payments made by the
Mortgagor thereon and all cash proceeds of the Related Security with respect to
such Loan.

            "Commitment Amount" shall have the meaning specified in the Pricing
Side Letter.

            "Commitment Term" shall mean that period of time commencing on March
19, 2005 and continuing until the earlier of (i) September 8, 2005 (or, if
applicable, such later date as may be in effect from time to time pursuant to
Section 2.10(d)), and (ii) the date upon which the Obligations are declared to
be, or become, due and payable in full in accordance with Article X.

            "Company Administration Agreement" shall mean the Administration
Agreement, dated as of July 2, 2002, among the Servicer, the Company, and the
Loan Originator (including any applicable amendments, supplements, exhibits and
schedules thereto).

            "Custodial Agreement" shall mean the Custodial Agreement, dated as
of July 2, 2002, among the Servicer, the Company, the Note Purchaser, the
Facility Administrator and the Custodian (including any applicable amendments,
supplements, exhibits and schedules thereto).

            "Custodial Loan File" shall mean, with respect to any Loan, the
documents identified in clauses (i) through (vii) of Section 2(b) of the
Custodial Agreement which are delivered or required to be delivered by the
Company to the Note Purchaser or its designee (including the Custodian) pursuant
to this Agreement.

            "Custodian" shall mean Wells Fargo Bank Minnesota, National
Association, a national banking association, as custodian under the Custodial
Agreement, or any successor thereto.

            "Default" shall mean any situation that, with the giving of notice
or the passage of time, or both would, unless cured or waived, become an Event
of Default.

            "Default Rate" shall mean, for any day, an annualized rate equal to
the One-Month LIBOR Rate plus 400 basis points per annum.

            "Determination Date" shall have the meaning assigned to such term in
the Sale and Servicing Agreement.

            "Disposition Agreement" shall mean the Master Disposition
Confirmation Agreement dated as of July 2, 2002, among the Company, the Note
Purchaser, the

                                       8

<PAGE>

Facility Administrator, the Loan Originator and the other parties thereto
(including any applicable amendments, supplements, exhibits and schedules
thereto).

            "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, supplemented or otherwise modified and in effect from time to
time, and the rules and regulations promulgated thereunder.

            "Escrow Payments" shall have the meaning specified in Article I of
the Sale and Servicing Agreement.

            "Event of Default" shall have the meaning specified in Section 9.1.

            "Facility Administration Agreement" shall mean the Facility
Administration Agreement, dated as of July 2, 2002, among the Company, the Note
Purchaser, the Servicer and the Facility Administrator (including any applicable
amendments, supplements, exhibits and schedules thereto).

            "Facility Administrator" shall mean Wells Fargo Bank, National
Association, a national banking association, as administrator under the Facility
Administration Agreement, or any successor thereto.

            "GAAP" shall mean generally accepted accounting principles applied
on a consistent basis as required thereby.

            "GAAP Net Worth" shall mean, as of any date of determination and
with respect to OOMC, the "tangible net worth", as defined and determined in
accordance with GAAP, of OOMC as of such date, exclusive of any loans
outstanding to any officer or director of OOMC or its Affiliates.

            "Governmental Authority" shall include any nation, government, or
state, or any political subdivision of any of them, or any court, entity, or
agency exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.

            "Grant" shall mean mortgage, pledge, bargain, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Agreement. A Grant of rights in any Collateral (including any
agreement or instrument included within the definition thereof) shall include
all rights, powers and options (but none of the obligations) of the Granting
party with respect thereto or thereunder, including the immediate and continuing
right to claim for, collect, receive and give receipt for principal and interest
payments in respect of the Collateral and all other monies payable thereunder,
to give and receive notices and other communications, to make waivers or other
agreements, to exercise all rights and options, to bring proceedings in the name
of the Granting Person or otherwise and generally to do and receive anything
that the Granting Person is or may be entitled to do or receive thereunder or
with respect thereto.

                                       9

<PAGE>

            "Initial Advance" shall mean the Advance relating to the Secured
Note issued and sold hereunder on the initial Advance Date.

            "Interest Period" shall mean, with respect to each Secured Note, (i)
the period beginning on (and including) the issuance date of such Secured Note
and ending on (but excluding) the initial Payment Date thereon, and (ii) each
subsequent period beginning on (and including) a Payment Date and ending on (but
excluding) the next succeeding Payment Date.

            "Interim Collateral" shall mean any of (i) cash and (ii) direct
obligations of the U.S. Treasury that are backed by the full faith and credit of
the United States of America.

            "Lien" shall mean any lien, pledge, security interest, charge or
other encumbrance that secures an obligation, of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any lien or security interest) and however
created.

            "LIBOR Business Day" shall mean a Business Day on which trading in
U.S. dollars is conducted between banks in the London interbank market.

            "Loan" shall mean a fixed- or variable-rate, first-lien loan or
second-lien loan to one or more obligors, in each case, that is secured by a
Mortgage on a Residential Dwelling located in the United States.

            "Loan Documents" shall mean each Mortgage, each Promissory Note and
each other agreement, instrument or other document executed by one or more
Mortgagors or other obligors that constitutes a portion of the Related Security
with respect to any Loan.

            "Loan Purchase and Contribution Agreement" shall mean the Loan
Purchase and Contribution Agreement, dated as of July 2, 2002, between the Loan
Originator as "Loan Originator" and Option One Loan Warehouse Corporation as
"Depositor" (including any applicable amendments, supplements, exhibits and
schedules thereto).

            "Margin" shall have the meaning specified in the Pricing Side
Letter.

            "Margin Option" shall have the meaning specified in Section 2.11.

            "Market Value" shall mean, with respect to any item of Collateral as
of any date of determination, the market value thereof as determined by the Note
Purchaser in its capacity as Market Value Agent in accordance with the relevant
provisions of the Sale and Servicing Agreement; provided that, in making any
determination pursuant to this definition, the "Market Value" of any Loan as to
which, at the time of such determination, (p) a breach of any representation or
warranty set forth on Exhibit B or in Section 4.1(m) (or in Section 4.1(k) or
4.2(h), to the extent that Section 4.1(k) or 4.2(h) applies to the
representations and warranties set forth on Exhibit B or in Section 4.1(m))

                                       10

<PAGE>

exists that, in the good faith judgment of the Note Purchaser, materially and
adversely affects the validity, enforceability, collectibility or value of such
Loan or the interest of the Note Purchaser or any Noteholder therein, or (q) any
portion of any payment of principal or interest due thereunder is more than 90
days past due, shall be deemed to be zero.

            "Material Adverse Effect" shall mean any event or condition which
would have a material adverse effect on (i) the validity, enforceability,
collectibility or value of any Collateral or of any of the Basic Documents, (ii)
the interest of the Note Purchaser or any of its assignees in such Collateral or
in any of the Basic Documents, (iii) the validity or enforceability of, or the
ability of the Company to perform its obligations under any of the Basic
Documents or (iv) the validity or enforceability of, or the ability of any of
the Immediate Transferor, OOLWC and OOMC to perform its obligations under, the
Basic Documents.

            "Maturity Date" shall mean March 31, 2035.

            "Minimum Margin Contribution" shall have the meaning specified in
Section 2.11.

            "Minimum Usage Fee" shall have the meaning specified in the Pricing
Side Letter.

            "Mortgage" shall mean, with respect to any Loan, the mortgage, deed
of trust, deed to secure debt or other instrument securing such Loan and the
related Promissory Note and creating a Lien on and in the related Mortgaged
Property.

            "Mortgaged Property" shall mean the underlying real property that
secures a Loan, in each case consisting of a parcel or parcels of land improved
by a Residential Dwelling.

            "Mortgagor" shall mean the obligor or obligors on a Promissory Note,
including any Person that has acquired the related Mortgaged Property and
assumed the obligations of the original obligor or obligors under the Promissory
Note.

            "Net Income" shall mean, for any period, and with respect to a
Person, the net income of the Person for such period as determined in accordance
with GAAP.

            "Non-Warehouse Leverage Ratio" shall mean the ratio of (x) the
aggregate "liabilities" of such Person less any liabilities constituting
"warehouse" lending (i.e., liabilities primarily secured by an interest in
mortgage loans for the purpose of financing such mortgage loans on an interim
basis until the disposition of such mortgage loans and liabilities associated
with servicing advance receivables (up to 80% of the GAAP book value of the
servicing advance receivable)) to (y) the Tangible Net Worth of such Person. For
the purposes of this definition, the term "liability" shall mean those
obligations or liabilities that, in accordance with GAAP, would be included in
the liability side of such Person's balance sheet and shall include, without
limitation, all indebtedness subordinated to any other obligation of the
Company; provided however,

                                       11

<PAGE>

that liabilities secured by intangible assets, shall be included only to the
extent of the excess, if any, of the amount of liabilities over the fair market
value of such intangible assets.

            "Noteholder" shall mean the Note Purchaser or any subsequent holder
of a Secured Note registered as such on the Custodial Register maintained by the
Facility Administrator pursuant to the Facility Administration Agreement.

            "Notice of Borrowing" shall mean a notice with respect to each
Advance, in substantially the form set forth in Exhibit C, delivered to the Note
Purchaser and the Facility Administrator by the Company in the method and manner
set forth herein.

            "Obligations" shall mean all amounts due and owing by the Company to
the Note Purchaser in connection with any Basic Document, including: (i) the
unpaid principal and, interest (including interest accruing thereon after the
Maturity Date and after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceedings, relating to
the Company, whether or not a claim for post-filing or post-petition interest is
allowed in the proceeding) on any Secured Note, when and as due, whether at
maturity, by acceleration or otherwise; and (ii) all other obligations and
liabilities of every nature of the Company from time to time owing to the Note
Purchaser, in each case whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred (including any monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in the proceeding).

            "One-Month LIBOR Rate" shall mean, for each day, the rate of
interest per annum for dollar deposits with a duration of one month that is
displayed (i) on the Telerate Page 3750 at about 11:00 a.m. (London time) on the
second LIBOR Business Day prior to such day, or (ii) if that page ceases to
display the necessary information, then on whatever page replaces it on that
service for the purpose of displaying that information (the "Telerate Rate"). If
the Telerate Rate cannot be determined, then the "One-Month LIBOR Rate" for any
day means the arithmetic mean of the rates of interest offered by two prime
banks in the London interbank market (selected by the Facility Administrator) in
respect of dollar deposits with a duration of one month at about 11:00 a.m.
(London time) on the second LIBOR Business Day prior to such day. Each
determination of the "One-Month LIBOR Rate" by the Facility Administrator
pursuant to the provisions of this Agreement or the Facility Administration
Agreement shall be conclusive and binding absent manifest error.

            "Optional Redemption Date" shall mean, with respect to any Secured
Note and at any time, the day on which the then-current Commitment Term is
scheduled to end or, if such date is not a Business Day, the immediately
preceding Business Day.

            "Other Assets" shall mean, with respect to any Loan purchased or
acquired from time to time by the Company (whether pursuant to the Sale and
Servicing Agreement or otherwise), any and all Related Security and Collections
relating to such Loan and any and all Proceeds of such Loan, Related Security or
Collections.

                                       12

<PAGE>

            "Payment Date" shall mean the 10th day of each calendar month (or,
if such day is not a Business Day, the next succeeding Business Day), together
with the Redemption Date, the Maturity Date, and such additional Payment Dates
as may be designated pursuant to Section 5.4(f) of the Facility Administration
Agreement.

            "Person" (whether or not capitalized) shall mean any corporation,
limited liability company, partnership, firm, joint venture, entity, natural
person, trust, estate, unincorporated organization, association, enterprise,
government or political subdivision thereof or governmental department or
agency.

            "Pledge" shall mean the Grant by the Company under the Facility
Administration Agreement of its right, title and interest in any portion of the
Collateral pursuant to Section 2.2 thereof or any other provision thereof.

            "Pledged Loan" shall mean, as of any date of determination, any Loan
that has been purchased or acquired by the Company (whether pursuant to the Sale
and Servicing Agreement or otherwise, including any Qualified Substitution Loan
substituted for one or more other Loans pursuant to Section 5.1) and Pledged to
the Note Purchaser under the terms of this Agreement as of such date; provided,
however, that such term shall not include any Loan that as of such date has been
released from the Lien created herein as provided in Section 3.6.

            "Principal Amount" shall mean, with respect to each issued and
outstanding Secured Note of the Company, an amount equal to the sum of (i) the
initial Advance Amount of such Secured Note, minus (ii) all payments of
principal on such Secured Note pursuant to the terms hereof.

            "Proceeds" (whether or not capitalized) shall mean (i) "proceeds" as
defined in Article 9 of the UCC, with respect to any of the Collateral,
including all cash and non-cash proceeds and further including all accounts,
accounts receivable, contract rights, money, claims for money (whether or not
earned by performance), checks, deposit accounts, documents, instruments,
chattel paper, investment property (including securities, securities
entitlements, securities accounts, commodity contracts and commodity accounts),
general intangibles, rights to proceeds of letters of credit and other property
(including goods, fixtures, products and accessions), and (ii) whether or not
constituting "proceeds" as defined in Article 9 of the UCC: (x) any and all
proceeds of any insurance policy, indemnity, warranty, or guaranty payable to
the Company from time to time with respect to any of the Collateral; (y) all
payments (in any form whatsoever) made or due and payable to the Company from
time to time in connection with any reacquisition, confiscation, condemnation,
seizure or forfeiture of any part of the Collateral by any Governmental
Authority or any sale, transfer or other disposition of any part of the
Collateral; and (z) dividends and any other amounts or property paid or
distributed, or payable or distributable, on or in respect of, or in connection
with, any of the Collateral.

                                       13

<PAGE>

            "Promissory Note" shall mean the original executed promissory note
or other evidence of indebtedness evidencing the indebtedness of a Mortgagor
under a Loan, together with any rider, addendum or amendment thereto.

            "Qualified Institutional Buyer" shall mean a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act.

            "Qualified Loan" shall mean, as of any date of determination
(including the date of issuance of any related Secured Note), a Loan with
respect to which each of the representations and warranties set forth on Exhibit
B is true and correct in all material respects.

            "Qualified Substitution Loan" shall mean any Loan (i) that meets all
the requirements of this Agreement with respect to substitutions of Collateral
(including that each of the representations and warranties set forth on Exhibit
B be true and correct in all material respects with respect thereto), and (ii)
as to which the Company has (a) the right, either directly or through
assignments of such rights under one or more Affiliate Transfer Agreements, to
cause the Loan Originator to repurchase such Loan on substantially the same
terms and conditions as those set forth in Section 3.06 of the Sale and
Servicing Agreement, and (b) the right to Pledge such rights to the Note
Purchaser as provided herein.

            "Records" shall mean all Loan Documents and other material documents
held or maintained by or for the Loan Originator or the Company (or other
originator or transferor of any Loan under any Transfer Agreement) or any of
their respective agents with respect to (i) any Loans sold to the Company
pursuant to the Sale and Servicing Agreement or otherwise acquired by the
Company, or (ii) the related Mortgagors or other obligors under any Related
Security, including any and all Required Documents and all Servicing Records
maintained by or for the benefit of the Servicer, including print-outs of Loan
histories and other records with respect to any Loan stored in the Servicer's
computerized servicing systems; provided that the foregoing definition of
"Records" is not intended to entitle any Person to direct access to the
computerized systems of any other Person.

            "Redemption Date" shall mean, with respect to any Secured Note, the
date on which such Secured Note is redeemed by the Company at the Note
Purchaser's election as provided in Section 2.10. Such date may be any Business
Day on or after the Optional Redemption Date and prior to the Maturity Date of
such Secured Note, as designated by the Note Purchaser in a written notice
delivered to the Company at least two (2) Business Days prior to such date.

            "Related Security" shall mean, with respect to any Loan, all of the
Company's right, title and interest in and to:

                  (i) the Mortgaged Property securing such Loan;

                  (ii) all other Liens, if any (and the property subject
      thereto), from time to time purporting to secure payment of such Loan or
      performance of

                                       14

<PAGE>

      any obligation with respect thereto, whether pursuant to the related Loan
      Documents or otherwise, together with all financing statements or other
      documents executed or filed for the purpose of perfecting any such Lien or
      placing such Lien of public record or otherwise imparting actual or
      constructive notice thereof;

                  (iii) all guarantees, indemnities, warranties, insurance (and
      proceeds and refunds of premiums in respect thereof) or other agreements
      or arrangements of any kind from time to time supporting or securing
      payment of such Loan or performance of any obligation with respect
      thereto, whether pursuant to the Loan Documents related to such Loan or
      otherwise;

                  (iv) the right to service such Loan, including all agreements
      relating to the servicing and administration of such Loan and all
      agreements relating to the custody of the Records relating to such Loan;

                  (v) all Records related to such Loan; and

                  (vi) all Proceeds of any of the foregoing.

            "Remittance Period" shall have the meaning assigned to such term in
the Sale and Servicing Agreement.

            "Residential Dwelling" shall mean any one of the following, none of
which is a cooperative: (i) an attached or detached one-family dwelling, (ii) an
attached or detached two- to four-family dwelling, (iii) an attached or detached
one-family dwelling unit in a Fannie Mae eligible condominium project, (iv) an
attached or detached one-family dwelling in a planned unit development, or (v) a
mobile home affixed to and constituting real property under applicable state
law.

            "Responsible Officer" shall mean, as to any Person, the chief
executive officer, the president, the chief operating officer, any executive
vice president or the chief financial officer of such Person.

            "Sale and Servicing Agreement" shall mean the Amended and Restated
Sale and Servicing Agreement, dated as of March 18, 2005, among the OOLWC as
"Depositor", the Company, the Loan Originator and the Facility Administrator
(including any applicable amendments, supplements, exhibits and schedules
thereto).

            "Secured Note" shall mean a Secured Note issued by the Company in
order to finance the purchase from the Loan Originator of one or more Loans.

            "Securities Act" shall mean the Securities Act of 1933, as amended.

            "Securitization" shall have the meaning assigned to such term in the
Disposition Agreement.

                                       15

<PAGE>

            "Servicer" shall mean OOMC in its capacity as servicer of the Loans,
and, to the extent applicable, each other Person as may be appointed from time
to time in accordance with the provisions hereof to act as servicer or
Subservicer of any or all of the Loans.

            "Shortfall" shall have the meaning specified in Section 2.11.

            "Subservicer" shall mean such Person as may be appointed from time
to time by the Servicer to act as a subservicer of any or all of the Loans that
are part of the Collateral, provided that such Person is acceptable to and
approved by the Company and the Note Purchaser.

            "Subsidiary" of a Person shall mean any other Person more than fifty
percent (50%) of the outstanding voting securities of which shall at any time be
owned or controlled, directly or indirectly, by such Person or by one or more
Subsidiaries of such Person. For purposes of this definition, "voting
securities" shall mean shares, interests, participations or other equivalents of
corporate stock, partnership or limited liability company interests or any other
participation, right or other interest in the nature of an equity interest that
ordinarily have voting power for the election of directors, managers or
trustees, whether at all times or only so long as no senior class of equity
interest has such voting power by reason of any contingency.

            "Tangible Equity" shall mean, with respect to any Person, the
aggregate "assets" of such Person less (i) the aggregate "liabilities" of such
Person, (ii) all intangible assets (including capitalized servicing) of such
Person; provided, however that with respect to residual interests and retained
interests in warehouse facilities only 50% of the value of such intangible
assets will be deducted from the related Person's aggregate "assets" and
provided, further that 50% of any deferred tax component of the write-up in the
value of any residual interests will be added to the aggregate "assets" of such
Person for purposes of determining its Tangible Equity, and (iii) any
investments in or loans to the shareholders, directors, officers, employees,
Subsidiaries and Affiliates of such Person (excluding investments in or loans to
such Person's parent or to H&R Block Inc.). For the purposes of this definition,
(x) the term "asset" shall have the meaning ascribed to such term by GAAP, but
shall also include so-called deferred points and fees; and (y) the term
"liability" shall mean those obligations or liabilities that, in accordance with
GAAP, would be included in the liability side of such Person's balance sheet and
shall include, without limitation, all indebtedness subordinated to any other
obligation of the Company; provided however, that liabilities secured by
intangible assets, shall be included only to the extent of the excess, if any,
of the amount of liabilities over the fair market value of such intangible
assets.

            "Tangible Equity Requirement Failure" shall mean, as of any date of
determination and with respect to OOMC, that OOMC's Tangible Equity as of such
date is less than $130,000,000.

                                       16

<PAGE>

            "Tangible Net Worth" shall be defined and determined in accordance
with GAAP and exclusive of (i) any loans outstanding to any officer or director
of OOMC or its Affiliates, (ii) any intangibles, and (iii) any receivables from
H&R Block Inc.

            "Telerate Rate" shall have the meaning specified in the definition
of "One-Month LIBOR Rate."

            "Transfer Agreement" shall mean an agreement between OOMC or any
Affiliate thereof as the "purchaser," and a third party originator or seller
(including any Affiliate of OOMC) as the "seller" or other transferor, for the
purchase and sale or other transfer of Loans that are Collateral for a Secured
Note.

            "Transferor" shall mean a third party originator or seller
(including any Affiliate of OOMC) that is a "seller" or other transferor under a
Transfer Agreement.

            "Trust Agreement" means the trust agreement pursuant to which the
Company is organized.

            "UCC" shall mean the Uniform Commercial Code, as in effect in the
relevant jurisdiction, as amended, supplemented or otherwise modified from time
to time.

            "Underwriting Standards" shall mean the Loan Originator's
underwriting policies and guidelines (including any and all amendments,
supplements or other modifications thereto) as set forth in Exhibit D (as such
Exhibit may be amended, supplemented or modified from time to time, subject to
Section 7.2(f)).

            "UPB" shall mean, with respect to any Loan as of any date of
determination, the unpaid principal balance (determined without taking into
account any principal payments made with respect to such Loan on such date).

            "Wet Funding Custodial File Delivery Date" As defined in the Sale
and Servicing Agreement.

            "Wet Funded Loan" shall mean a Loan which is pledged to the Note
Purchaser, simultaneously with the origination thereof by the Company pursuant
to Section 2.4(d) and is funded in part or in whole with proceeds of the
purchase of Notes. A Loan shall cease to be a Wet Funded Loan when documents are
received by the Custodian as provided in Section 2.4(d)(iii).

            "Wet Funding Schedule" shall have the meaning specified in Section
2.4(d)(ii).

                                       17

<PAGE>

            Section 1.2 Usage of Terms. For purposes of this Agreement: (i) the
singular includes the plural and the plural includes the singular; (ii) words
importing any gender include the other genders; (iii) the words "and" and "or"
are used in the conjunctive or disjunctive as the sense and circumstances may
require, (iv) references to "writing" include printing, typing, lithography and
other means of reproducing words in a visible form; (v) references to agreements
and other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement or the Sale and Servicing Agreement; (vi)
references to Persons include their permitted successors and assigns; (vii) any
form of the word "include" shall be deemed to be followed by the words "without
limitation"; (viii) the phrase "in and to" shall be deemed to include "under"
and "with respect to" whenever appropriate; (ix) unless the context clearly
requires otherwise, the word "finance" shall be deemed to include "refinance";
(x) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision; and (xi) Article, Section, Schedule and Exhibit
references, unless otherwise specified, refer to Articles and Sections of and
Schedules and Exhibits to this Agreement. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each mean "to but excluding."

                                   ARTICLE II

                             COMMITMENT AND ADVANCES

            Section 2.1 Commitment to Purchase. (a) Subject to the terms and
conditions set forth herein, the Company hereby agrees to sell to the Note
Purchaser, and the Note Purchaser hereby agrees to purchase from the Company,
during the Commitment Term, one or more Secured Notes in the method and manner
set forth herein. The purchase price for each Secured Note shall be equal to the
original Principal Amount thereof. The aggregate Principal Amount of all Secured
Notes issued and outstanding shall not exceed the Commitment Amount, unless the
Note Purchaser in its sole discretion consents in writing to an increase in the
aggregate Principal Amount that may be issued and outstanding hereunder.

            (b) The Custodian shall be required under the Custodial Agreement to
amend (which may be manually) the Collateral Schedule upon the addition or
deletion of Collateral related thereto, and the Borrowing Base shall be adjusted
accordingly.

            (c) With the exception of the Principal Amount, the calculation of
the Advance Amount reflected thereon and the Maturity Date, each Secured Note
shall have substantially the same terms as each other Secured Note, including
the base interest rate, the Payment Date and the Optional Redemption Date. Each
Secured Note shall be secured by all of the Collateral, equally and ratably with
each other Secured Note issued hereunder.

                                       18

<PAGE>

            Section 2.2 Minimum Usage. The Company and OOMC hereby acknowledge
that the Note Purchaser is entering into this facility with the understanding
that the Note Purchaser expects to receive the Minimum Usage Fee as and when
provided in the Pricing Side Letter.

            Section 2.3 Principal Amount of Secured Notes. The initial Principal
Amount of each Secured Note shall be the related Advance Amount; provided that
the Note Purchaser shall not be required to make any Advance in an amount that
is less than twenty million dollars ($20,000,000). Under no circumstances shall
a Noteholder other than the Note Purchaser be required to make any Advance at
all hereunder.

            Section 2.4 Procedures for Making Advances.

            (a) If the Company desires to obtain an Advance hereunder, other
than the Initial Advance, the Company shall deliver a Notice of Borrowing to the
Note Purchaser and to the Facility Administrator, specifying the amount of
Advance requested and the requested Advance Date, not later than 3:30 p.m., New
York City time, two (2) Business Days prior to the requested Advance Date for
any Loans which are not Wet Funded Loans, and (ii) 4:30 p.m., New York City
time, one (1) Business Day prior to the Advance Date for any Loans which are Wet
Funded Loans. Each Notice of Borrowing shall (i) specify the requested Advance
Date, (ii) include a Mortgage Loan Tape in electronic form containing detailed
information with respect to the Loans (other than the Wet Funded Loans) that the
Company proposes to pledge to the Note Purchaser and to be included in the
Borrowing Base in connection with such Notice of Borrowing, and (iii) attach a
different certificate of the Company as required by Section 6.02(c) hereof. With
respect to Wet Funded Loans, the Company shall provide the Note Purchaser with
(i) a detailed listing of the Wet Funded Loans the Company proposed to pledge by
9:00 a.m. New York City time on the related Advance Date and (ii) a final
listing of the Wet Funded Loans the Company proposed to pledge by 4:00 p.m. New
York City time on the related Advance Date.

            (b) If on the designated Advance Date the conditions of this
Agreement (including those of the related Notice of Borrowing) have been either
satisfied by the Company or waived by the Note Purchaser, the related Advance
Amount shall be funded on such Advance Date by the Note Purchaser. Each Advance
shall be made available to the Company in immediately available funds to the
account identified by the Company against delivery by the Company to the Note
Purchaser of a Secured Note, duly executed on behalf of the Company by the
Facility Administrator, in a Principal Amount equal to the Advance Amount.

            (c) In the case of a Loan which is not a Wet Funded Loan, the
Company shall release to the Custodian, no later than 7:30 a.m. Pacific time,
two (2) Business Days (or such later time as the Custodian and the Company may
agree) prior to the requested Advance Date, the Custodial Loan File pertaining
to each Loan to be pledged to the Note Purchaser and included in the Borrowing
Base on such requested Advance Date, in accordance with the terms and conditions
hereof and of the Custodial Agreement.

                                       19

<PAGE>

            (d) With respect to each Loan which is a Wet Funded Loan pledged to
the Facility Administrator and included in the Borrowing Base on a requested
Advance Date:

            (i) Not later than 4:30 p.m. New York City time at least one
            Business Day prior to the related Advance Date, the Company shall
            deliver to the Facility Administrator a report detailing the
            approximate outstanding principal balance of Wet Funded Loans to be
            pledged to the Note Purchaser on such Advance Date and the
            approximate principal amount of the related Notes.

            (ii) An amount up to the expected original principal amount of each
            Wet Funded Loan, shall be remitted, in whole or in part, as
            requested by the Company, by the Note Purchaser, provided that, on
            or prior to the related Advance Date, the Company shall provide to
            the Note Purchaser a schedule (the "Wet Funding Schedule") setting
            forth the mortgage loan identification number, the Mortgagor name,
            the outstanding principal balance of Wet Funded Loans, the amount to
            be remitted for each Wet Funded Loan to be pledged to the Facility
            Administrator on such Advance Date and the aggregate of all such
            amounts, to be remitted on such Advance Date.

            (iii) The Company shall deliver the Custodial Loan File related
            thereto to the Custodian for receipt by the Custodian no later than
            the Wet Funded Custodial File Delivery Date.

            (iv) No later than the close of business, New York City time, on the
            Business Day following each Advance Date, the Company shall forward
            to the Note Purchaser a schedule with respect to each Wet Funded
            Loan funded on such Advance Date setting forth the related Loan
            number, the Mortgagor name, the amount of each such Wet Funded Loan,
            and a list of each wire actually issued in respect to such Wet
            Funded Loan, setting forth the amount, the payee, and the wire
            reference number, as appropriate. Any amounts with respect to each
            Wet Funded Loan which have not funded will be remitted by the
            Company back to the Note Purchaser no later than the close of
            business on the Business Day following each Advance Date.

            (e) Pursuant to the Custodial Agreement, the Custodian shall:

               Issue a Trust Receipt by 1:00 p.m. Pacific time in connection
               with each delivery of Loans to the Custodian under the Custodial
               Agreement (or any change in the Loans held by the Custodian
               hereunder, including the conversion of Wet Funded Loans to Loans
               that are not Wet Funded Loans prior to 1:00 p.m. Pacific time on
               the date of issuance of such Trust Receipt), and a cumulative
               Exceptions Report and cumulative Loan Schedules shall be attached
               to such Trust

                                       20

<PAGE>

               Receipt. Separate Trust Receipts will be delivered in connection
               with Wet Funded Loans and Loans which are not Wet Funded Loans.
               Upon the issuance of a new Trust Receipt for Wet Funded Loans or
               for Loans which are not Wet Funded Loans, the prior Trust Receipt
               for such Loans shall be deemed canceled. If any Wet Funded Loans
               have not funded pursuant to Section 2.4(d)(iv), then the
               Custodian shall issue a new Trust Receipt reflecting such
               unfunded Wet Funded Loans.

            (f) The Company shall furnish to the Note Purchaser a preliminary
Mortgage Loan Schedule with respect to Wet Funded Loans not later than 4:30 p.m.
New York City time on the Business Day preceding the related Advance Date,
confirmed by near-final Mortgage Loan Schedule for such Wet Funded Loans
received by the Note Purchaser not later than 6:00 p.m. New York City time on
the Business Day prior to the related Advance Date.

            (g) Subject to Section 6 hereof, the purchase price of each Advance
required under Section 2.1 will then be made available (or deemed made
available) to the Company by the Note Purchaser by means of transfer, via wire
transfer, of the funds made available to the Note Purchaser for the Advance, to
the following account of the Company (or such other account as it may identify
by notice given to the Note Purchaser not later than the third Business Day
before the relevant Advance Date):_______, for the A/C of the Company, in trust,
ABA#_________, Attn:_________., in funds immediately available to the Company.

            Section 2.5 Interest Rate. The Principal Amount of each Secured Note
shall bear interest, for each day, at a rate per annum equal to the One-Month
LIBOR Rate plus the Margin, in each case computed on the basis of a 360-day year
for the actual number of days elapsed.

            Section 2.6 Interest Payments.

            All interest accrued on each Secured Note for each Interest Period
shall be payable in arrears on each Payment Date for the related Interest Period
from amounts allocable to interest on the Loans on deposit in the Collection
Account (including net investment earnings on deposit in such Account) on the
Determination Date immediately preceding the Payment Date, together with such
additional amounts, if any, as may be deposited into the Collection Account
prior to such Payment Date by the Servicer pursuant to the Sale and Servicing
Agreement, and to the extent that such interest receipts and deposits by the
Servicer are insufficient, from the Company directly. Any interest receipts
remaining in the Collection Account with respect to the Remittance Period then
most recently ended following payment of the interest due on the related Payment
Date shall be immediately released to the Company. All interest accrued and
unpaid as of the Maturity Date of any Secured Note, or, if earlier, the
applicable Redemption Date, shall be payable thereon.

                                       21

<PAGE>

            Section 2.7 Maximum Interest Rate.

            If, by the terms of this Agreement or any Secured Note, the Company
at any time is required or obligated to pay interest at a rate in excess of the
maximum rate permitted by applicable law, the rate of interest payable with
respect to the affected Secured Notes shall be immediately reduced to that
maximum rate and the portion of all prior applicable interest payments in excess
of the maximum rate permitted by applicable law shall be applied in reduction of
the Principal Amounts of the affected Secured Notes.

            Section 2.8 Funds; Manner of Payment.

            Each payment under or in connection with this Agreement or any
Secured Note shall be paid by the Company, or (without limiting the Company's
obligation to make any and all payments required hereunder or under any Secured
Note) by the Facility Administrator on behalf of the Company, in each case,
without set-off or counterclaim (except as the parties may otherwise agree in
the normal course of business) and in immediately available funds, to the Note
Purchaser at its office located at 1285 Avenue of the Americas, New York, New
York or to any other location that the Note Purchaser or any Noteholder
specifies to the Company, not later than 3:00 p.m. New York City time on the
date on which the payment is payable. If the date for any payment of principal
is extended or any reason, by operation of law or otherwise, interest shall
accrue at the then-applicable rate during the extension (subject, if applicable,
to Section 10.4).

            Section 2.9 Issuance, Registration and Transfer of Secured Notes.

            Each Advance shall be evidenced by the issuance of a new Secured
Note. Each Secured Note shall be duly executed by the Company and be payable to
the Note Purchaser, or its registered assigns, in an initial Principal Amount
equal to the related Advance Amount. Each Secured Note shall be dated the date
of the related Advance, be stated to mature on the Maturity Date, and provide
for the payment of interest in accordance with Sections 2.5, 2.6, 2.7, 2.8, 2.10
and 10.4.

            The final payment of principal to be made on any Secured Note shall
be made only upon surrender of such Secured Note to the Company (or the Facility
Administrator on behalf of the Company at its corporate trust office in
Columbia, Maryland). Any sale or transfer of a Secured Note may be made only in
a transaction that is exempt from the registration requirements of the
Securities Act, and only to a Person that the selling or transferring Person
reasonably believes to be a Qualified Institutional Buyer, and the Secured Notes
shall bear a legend to that effect. Every Secured Note presented or surrendered
to the Facility Administrator for registration of transfer or exchange shall be
accompanied by a written instrument, executed by the transferee, substantially
in the form of Exhibit C to the Facility Administration Agreement and otherwise
reasonably satisfactory to the Note Purchaser, indicating that such sale or
transfer is being effected in full compliance with, or is exempt from, the
registration requirements of the Securities Act. Any new Secured Note issued in

                                       22

<PAGE>

exchange for a Secured Note shall be executed by the Facility Administrator on
behalf of the Company and delivered by the Facility Administrator.

            Section 2.10 Principal Payments; Payment on Maturity Date.

            (a) In addition to such payments of principal as the Company may be
required to make pursuant to Section 5.1 or Article X or as provided in
Subsection 2.10(b), 2.10(c) or 2.11, on each Payment Date, the Company shall
prepay the Secured Notes in an amount equal to the sum of the aggregate amount
held in the Collection Account in respect of the principal of Loans (whether as
part of a regular monthly installment of principal and interest, in respect of
any whole or partial prepayment of any Loan, or in respect of the liquidation of
any Loan) at the close of business on the Determination Date immediately
preceding such Payment Date. Each payment of principal shall be applied to the
repayment of the principal of the Secured Notes in proportion to the amounts of
principal collected with respect to each Secured Note.

            (b) From time to time, the Note Purchaser may, in the exercise of
its rights under Article IV and Section 6.3 of the Trust Agreement (and in
compliance therewith), direct that the Company sell one or more Loans to one or
more identified Persons and on specified terms and conditions, and apply the
proceeds of such sale (i) to the extent required to avoid the occurrence of a
Shortfall upon giving effect to such sale, to the prepayment of the principal of
the Secured Notes, and (ii) to the payment of accrued and unpaid interest on
that portion of the Secured Notes so prepaid, to the date of prepayment. The
Company shall comply with all such directions, and, upon the closing of such
sale, shall apply the proceeds thereof in accordance with the preceding
sentence.

            (c) The Company shall repay the Principal Amount of each Secured
Note in full on the Maturity Date, together with all accrued and unpaid interest
thereon to the Maturity Date and all other accrued and unpaid Obligations under
the Basic Documents. In addition, if the Note Purchaser so elects in its sole
discretion (such election to be made by the Note Purchaser in writing and
delivered to the Company at least two (2) Business Days prior to the date
specified in the writing as the Redemption Date), the Company shall repay the
respective Principal Amounts of all issued and outstanding Secured Notes in full
on the Optional Redemption Date, together with all accrued and unpaid interest
thereon to the Optional Redemption Date and all other accrued and unpaid
Obligations under the Basic Documents. Pursuant to the preceding sentence, the
Note Purchaser hereby elects, and the Company hereby acknowledges receipt of
such notice of election, to require the Company to repay the respective
Principal Amounts of all issued and outstanding Secured Notes in full on the
Optional Redemption Date (which shall be the Redemption Date), together with all
accrued and unpaid interest thereon to, but not including, the Redemption Date
and all other accrued and unpaid Obligations under the Basic Documents;
provided, however, that the Note Purchaser and the Company may mutually agree to
revoke such election on any date that is 90 or more days prior to the Optional
Redemption Date. Any extension of the Commitment Term effected pursuant to
Section 2.10(d) shall automatically extend the then-current Optional Redemption
Date and Redemption Date.

                                       23

<PAGE>

            (d) (i) The Company, by notice in writing delivered to the Note
Purchaser (each such notice, an "Extension Request") no later than the date that
is 180 days before the then-current Optional Redemption Date, may request that
the Note Purchaser agree to extend the Commitment Term for an additional period,
in each case, ending on a Business Day not more than three hundred sixty-four
(364) days from the date upon which the Note Purchaser approves such request (if
applicable).

               (ii) Upon receipt of any Extension Request from the Company, the
Note Purchaser shall undertake a credit assessment of the Company consistent
with the Note Purchaser's then-current credit standards and practices, and, if
the Note Purchaser decides, in its sole and total discretion, to extend the
Commitment Term for an additional period as described in the preceding clause
(i), the Note Purchaser shall so notify the Company that it has approved the
Extension Request, and of the last day of the Commitment Term, as so extended,
which shall be a Business Day not more than 364 days after the date of such
Notice. If the Note Purchaser does not respond to the Company within thirty (30)
days after the date on which it receives the Extension Request, the Note
Purchaser shall be deemed to have declined the Extension Request.

               (iii) The Company and OOMC acknowledge that the Note Purchaser
has not made any representations to the Company or OOMC regarding its intention
to extend the Commitment Term as set forth in this Section 2.10(a), and that the
Note Purchaser shall not have any obligation to extend the Commitment Term.

            (e) For the avoidance of doubt, any Minimum Usage Fee shall be
calculated as of the last day of the relevant Minimum Usage Period , and shall
be due and payable on the last day of such Minimum Usage Period (whether or not
it is the Redemption Date) or, if applicable, the last day of the Commitment
Term, and shall constitute an accrued and unpaid Obligation for purposes of
calculating the amounts required to be paid in connection with any prepayment of
the Secured Notes in full.

            Section 2.11 Margin Option.

            At any time and from time to time, the Note Purchaser shall have the
right to determine whether the Borrowing Base supports the aggregate Principal
Amounts of the Secured Note. The right to make such determination includes the
right to determine the Market Value of each Loan with respect to the acquisition
of which a Secured Note was issued at any time and from time to time. If at any
time the Note Purchaser determines that the aggregate Principal Amounts of the
Secured Notes exceed the Borrowing Base, then, in each such case, a "Shortfall"
shall exist.

            The Note Purchaser shall give written notice to the Company and
OOLWC of such determination and of the amount of such Shortfall (each such
notice, a "Margin Option") and, if notice is provided by 11:00 a.m. New York
City time, within one Business Day (and otherwise, within two Business Days)
after receipt of such Margin Option, (a) OOLWC has contributed to the Company
(i) to the extent held by or reasonably available to OOLWC, Qualified
Substitution Loans having an aggregate Collateral Value equal to at least the
amount of such Shortfall, and (ii) to the extent that

                                       24

<PAGE>

sufficient Qualified Substitution Loans are not so held by, or reasonably
available to, OOLWC, cash in an amount equal to at least the difference between
the amount of such Shortfall and the aggregate Collateral Value of such
Qualified Substitution Loans as are contributed by OOLWC to the Company (the
"Minimum Margin Contribution"); and (b) the Company has Pledged such Qualified
Substitution Loans, together with all Other Assets related thereto, to the Note
Purchaser and has paid such cash to the Note Purchaser, for immediate
application to the repayment of the principal of the Secured Notes, then the
Shortfall shall be deemed to have been cured. If, within such period, the
Shortfall has not been so cured, or if, prior to expiration of such period,
OOLWC has notified the Note Purchaser that OOLWC does not intend to effect the
Minimum Margin Contribution, such occurrence shall constitute an Event of
Default; provided, however, that nothing contained herein shall either obligate
OOLWC to effect any Minimum Margin Contribution or impose any liability to the
Note Purchaser on OOLWC for any election by OOLWC not to effect a Minimum Margin
Contribution.

            If any portion of the proceeds of an Advance are made available to
the Company in connection with the inclusion in the Borrowing Base of a proposed
Wet Funded Loan which is not actually made on the Advance Date, the Company
shall not later than one Business Day after that Advance Date prepay that
portion of the principal amount of the Notes which corresponds to such proposed
Wet Funded Loan. The interest accrued on the amount of the prepayment from and
including the relevant Advance Date and to but excluding the date of the
prepayment (or, if the prepayment is made on the Advance Date, one day's
interest thereon) shall be included in the interest payable hereunder on the
next following Payment Date.

            Notwithstanding any other provision of this Agreement or any other
Basic Document to the contrary, if OOLWC effects all or any portion of a Minimum
Margin Contribution, the Company shall immediately (x) Pledge to the Note
Purchaser all Qualified Substitution Loans, together with all Other Assets
related thereto, and (y) pay, or cause to be paid, to the Note Purchaser, all
cash contributed to the Company by OOLWC in response to the precipitating Margin
Option. All such cash shall be immediately applied to repayment of the principal
of the Secured Notes.

                                   ARTICLE III

                                    SECURITY

            Section 3.1 Lien.

            The due and punctual payment and performance by the Company of all
of its obligations hereunder, including the payment of any and all amounts
required to be paid pursuant to the Secured Notes and the payment of any and all
other Obligations, shall at all times be secured by a Lien on and in all of the
Company's right, title and interest of any kind and nature whatsoever (whether
now owned or existing or at any time hereafter acquired or arising) in and to
the Collateral, which shall at all times be a Lien of first priority. Such Lien
shall be granted by the Company, pursuant to the Facility

                                       25

<PAGE>

Administration Agreement, to the Facility Administrator as collateral agent and
secured party for the benefit and on behalf of the Note Purchaser.

            Section 3.2 Further Assurances.

            Promptly upon the Note Purchaser's request from time to time, the
Company shall perform (or cause to be performed) such further acts and shall
execute, acknowledge and deliver (or cause to be executed, acknowledged and
delivered) to the Note Purchaser or its designee such further documents,
consistent with the terms of this Agreement (including UCC-1 financing
statements naming the Company as debtor and the Facility Administrator as
secured party and any continuation statements relating thereto), as the Note
Purchaser may deem necessary or advisable in order to evidence, establish,
maintain, protect, enforce or defend its rights in and to the Collateral
(including any and all of the Pledged Loans) or otherwise to carry out the
intent and accomplish the purposes of this Agreement. To the fullest extent
permitted by applicable law, the Facility Administrator shall be permitted from
time to time to sign and file continuation statements and amendments thereto and
assignments thereof without the Company's signature. In all cases, carbon,
photographic or other reproduction of this Agreement or any financing statement
shall be sufficient as a financing statement.

            Section 3.3 Power of Attorney.

            The Company hereby appoints each of the Note Purchaser and the
Facility Administrator as the Company's true and lawful attorney-in-fact, with
the right (but not the obligation) to act in the Company's name, place and
stead, with full power of substitution and delegation, for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any documents consistent with the terms of this Agreement and the
Facility Administration Agreement that the Note Purchaser shall deem necessary
or advisable to accomplish the purposes hereof (including any financing or
continuation statements that may be necessary to perfect or continue any Lien
granted to the Facility Administrator as described in Section 3.1). This
appointment as attorney-in-fact is irrevocable and is coupled with an interest
until such time as the Commitment Term has ended, all Obligations have been paid
in full, and all other obligations of the Company under the Basic Documents have
been performed in full. Without in any way limiting the generality of the
foregoing, the Facility Administrator shall have the right and power to receive,
endorse and collect all checks made payable to the order of the Company on
account of the principal of or interest on any of the Pledged Loans and to give
full discharge of the same.

            Section 3.4 Duty of Care.

            Neither the Note Purchaser nor the Facility Administrator shall have
any duty with respect to any of the Collateral except to use commercially
reasonable care in the safekeeping and preservation of any of the Collateral
that may come into its actual possession. To the fullest extent permitted under
applicable law, the Company hereby waives the defense of impairment of the
Collateral. The Company shall take any reasonable and necessary action
appropriate to preserve the Note Purchaser's or the

                                       26

<PAGE>

Facility Administrator's rights in the Collateral against any other Person, and
shall defend the Collateral against all claims and demands of all Persons, at
all times, that are adverse to the Note Purchaser or the Facility Administrator,
in its capacity as collateral agent and secured party for the benefit and on
behalf of the Note Purchaser.

            Section 3.5 Earnings on Collateral.

            With respect to each Secured Note, so long as an Event of Default
shall not have occurred, the aggregate interest collected on all of the Loans
constituting related Collateral that relates to the prior Remittance Period as
of the related Determination Date may, to the extent not required to pay
interest on such Secured Note that accrued during the related Interest Period or
to discharge any other Obligation (including the payment of interest on any
other Secured Note), be paid by the Facility Administrator to the Company or as
otherwise provided in the Facility Administration Agreement, and if by being so
paid it is distributed in any manner other than to the Note Purchaser or any
person acting on behalf of the Note Purchaser (e.g., the Facility
Administrator), then the distributions shall be released from the Lien granted
to the Facility Administrator by the Facility Administration Agreement. The Note
Purchaser may, in its sole discretion after the occurrence and during the
continuation of an Event of Default, direct the Facility Administrator to remit
all amounts that would otherwise be available for distribution to the Company or
its designee (including any Certificateholder under the Trust Agreement) with
respect to the Collateral to be transferred directly to the Note Purchaser.

            Section 3.6 Release of Collateral.

            (a) Release Upon Repurchase or Prepayment of Loan. At any time that
a Loan that has been Pledged by the Company hereunder is repurchased or prepaid
in full (whether to cover a Shortfall pursuant to Section 5.1 or otherwise), the
Company may obtain a release from the Facility Administrator of its Lien with
respect to the Loan(s) that are repurchased or as to which a prepayment is made,
and the Note Purchaser shall so instruct the Facility Administrator.

            (b) Release Upon Sale of Loans and Prepayment of Secured Notes. If
the Note Purchaser shall direct the sale of any Loan as described in Subsection
2.10(b), then, provided that immediately after giving effect to such sale (and
taking into account the application of the proceeds of such sale, in whole or in
part, to the prepayment of the Secured Notes), no Shortfall would exist, (i) the
Note Purchaser shall cause the Facility Administrator to release its Lien with
respect to such Loan and (ii) provided, further, that no Default or Event of
Default then exists or would be caused thereby, the Note Purchaser shall cause
the Facility Administrator to release its Lien with respect to that portion, if
any, of the proceeds of such sale in excess of the amount required under Section
2.10(b) to be applied to the payment of the principal of and interest on the
Secured Notes.

            (c) Documentation. Any release of the Facility Administrator's Lien
with respect to any part of the Collateral as a result of a repurchase or
prepayment shall be evidenced by the execution and delivery by the Facility
Administrator of appropriate

                                       27

<PAGE>

documentation to evidence the release, such documentation to be prepared at the
expense of the Company.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

            Section 4.1 Company's Representations and Warranties;
Representations and Warranties Regarding the Loans.

            (i) The Company and OOMC jointly and severally represent and warrant
to the Note Purchaser, with respect to Section 4.1(m), on the date of the Pledge
hereunder of the related Loan; and (ii) the Company severally represents and
warrants to the Note Purchaser, with respect to each other subsection of this
Section 4.1, on the date of this Agreement, on the date of each Advance and on
each date on which any Collateral is released to it or substituted by it, that:

            (a) Due Organization. The Company is a business trust duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all power and all material governmental licenses,
authorizations, consents and approvals required to carry on its business in each
jurisdiction in which its business is now conducted. The Company is duly
qualified to do business in, and is in good standing in, every other
jurisdiction in which the nature of its business requires it to be so qualified.

            (b) Authorization; Binding Effect. The Company has full power and
authority to execute and deliver this Agreement and each Secured Note and to
perform its obligations under the Basic Documents to which it is a party. The
Basic Documents to which the Company is a party have been duly authorized by all
necessary action and do not require any additional approval by anyone that has
not already been obtained. The Basic Documents to which the Company is a party
have been duly executed and delivered by the Company and constitute its valid
and legally binding obligations, enforceable against it in accordance with their
respective terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization, and similar laws of general applicability relating to or
affecting creditors' rights and to general principles of equity and equitable
remedies, regardless of whether enforcement is considered in a proceeding in
equity or at law.

            (c) No Conflict. Neither the execution and delivery nor the
performance by the Company of the Basic Documents to which it is a party will
conflict with the governing instruments of the Company or conflict with, result
in a breach, violation or acceleration of, or constitute a default or require
any consent under any instrument or agreement to which the Company is a party or
by which the Company or its properties may be bound, or any law, order, or
regulation applicable to the Company of any Governmental Authority having
jurisdiction over the Company or its properties, and do not and will not result
in or require the creation of any Lien (other than pursuant to this Agreement)
with respect to any of the Company's properties.

                                       28

<PAGE>

            (d) Approvals. Neither the execution and delivery nor the
performance by the Company of the Basic Documents to which it is a party
requires any authorization, approval, consent, license, exemption (other than
any self-executing exemption), filing, registration, or any other action except
those which have been obtained and are in full force and effect or where the
failure to comply with the requirement would not adversely affect the delivery,
execution or performance by the Company of the Basic Documents.

            (e) No Defaults. Neither the Company nor any of its Affiliates is in
default under any mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money to which it is a party or by which
its properties are bound, which default is likely to result in a Material
Adverse Effect. No Event of Default has occurred and is continuing under this
Agreement.

            (f) Good Title. The Company holds good and indefeasible title to,
and is the sole owner of, all right, title and interest in and to the Collateral
(including any and all Loans and the related Other Assets given as security for
any of the Company's obligations hereunder), free and clear of all Liens,
participations and rights of others (except for the Lien created by this
Agreement), and on each date this representation is made, the Note Purchaser has
a first priority Lien with respect to the Collateral and no further action in
the nature of delivery of possession or filing, including any filing of any
document (other than the filing of a UCC-1 financing statement with the
Secretary of the State of California naming the Company as "debtor" and the Note
Purchaser as "secured party" and describing the Collateral as the "collateral"
therein, but only if such filing has not previously been made), is required to
establish and (insofar as a security interest may be perfected by filing or
possession) perfect the Lien with respect to the Collateral in favor of the Note
Purchaser against all third parties in any jurisdiction.

            (g) Chief Executive Office. The Company's Chief Executive Office is
located at 3 Ada, Irvine, CA 92618. The Custodial Loan Files concerning the
Pledged Loans are held in the offices of the Custodian under the Custodial
Agreement in the State of California.

            (h) Taxpayer Identification Number. The Company's federal taxpayer
identification number is 3543125.

            (i) Tax Liens. There are no delinquent federal, state, city, county,
or other taxes relating to any of the Company, the Immediate Transferor, OOLWC
or OOMC except those taxes (i) that are being contested by such Person in good
faith, (ii) that are not material in amount, (iii) with respect to which payment
has been stayed by a court of competent jurisdiction, (iv) that relate to a
Mortgage Property, or (v) that would not have a Material Adverse Effect.

            (j) No Litigation. There are no actions, suits, investigations or
other proceedings pending or, to the best knowledge of the Company after due
inquiry, threatened against or affecting the Company by or before any court,
arbitrator, or Governmental Authority (i) asserting the invalidity of this
Agreement or any of the other

                                       29

<PAGE>

Basic Documents, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the other Basic Documents,
or (iii) which is reasonably likely to materially and adversely affect the
validity, enforceability, collectibility or value of any Pledged Loan that is
being Pledged on such date or other Collateral that is being Pledged on such
date or the interest of the Note Purchaser or any Noteholder. There are no
preliminary or permanent injunctions or orders by any court or other
Governmental Authority pending adversely affecting this Agreement or any of the
other Basic Documents or any of the transactions contemplated hereby or thereby.

            (k) All Documents True and Correct. All representations and
warranties made, and all information, reports, financial statements (including
financial statements of OOMC), exhibits, schedules, and documents or copies of
documents furnished to the Note Purchaser by or on behalf of the Company
pursuant to or in connection with the negotiation, preparation, delivery or
performance of this Agreement and the other Basic Documents to which the Company
is a party, or with the transactions contemplated hereby, are true and correct
and, when considered as a whole, complete in every material respect or (in the
case of projections, based on reasonable estimates), at the time when made or,
if limited to a specific date, as of the date to which they refer, and no such
writing or information contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or
therein not misleading. There is no fact known to a Responsible Officer of the
Company or the Loan Originator that, after due inquiry, could reasonably be
expected to have a Material Adverse Effect that has not been disclosed herein,
in the other Basic Documents to which the Company is a party or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Note Purchaser for use in connection with the transactions
contemplated hereby or thereby.

            (l) Investment Company Act. The Company is not, nor is it controlled
by, an "investment company" within the meaning of the Investment Company Act of
1940, as amended.

            (m) Qualified Loans. Each and every Loan that is a Pledged Loan is
also a Qualified Loan.

            (n) Ownership of the Company. The Company is, indirectly, a
wholly-owned Subsidiary of OOMC and is wholly-owned, directly, by OOLWC.

            (o) Debt. The Company does not have any outstanding debt obligation
for money borrowed (other than debt arising under this Agreement), any other
(i.e., debt arising for reasons other than money borrowed) material debt
obligations other than amounts owed to the Immediate Transferor in consideration
of assets purchased by the Company under the Sale and Servicing Agreement or
pursuant to the Disposition Agreement.

            (p) Ordinary Course. The transactions contemplated by this Agreement
are in the ordinary course of business of the Company. The Company will

                                       30

<PAGE>

engage in each acquisition of Loans under the Sale and Servicing Agreement or
pursuant to the Disposition Agreement as a principal and not as an agent.

            (q) Solvency. The Company is solvent, is able to pay its debts as
they become due and has capital sufficient to carry on its business and its
obligations hereunder. The Company will not be rendered insolvent by the
execution and delivery of this Agreement or the performance of its obligations
hereunder. No petition of bankruptcy (or similar insolvency proceeding) has been
filed by or against the Company. (r) No Intent to Hinder or Defraud. In
incurring any obligation or making any "transfer" (as defined in Section 101 of
the Bankruptcy Code) of property or any interest therein pursuant to this
Agreement (whether in connection with an Advance or otherwise), the Company does
not intend to hinder, delay or defraud any Person to which the Company is or
will become, on or after the date on which such obligation is incurred or such
transfer is made, indebted.

            (s) Reasonably Equivalent Value. With respect to any obligation
incurred by the Company or any "transfer" (as defined in Section 101 of the
Bankruptcy Code) of property or any interest therein made by the Company
pursuant to this Agreement (whether in connection with an Advance or otherwise),
(i) the Company has received "reasonably equivalent value" within the meaning of
Section 548(a)(1)(B)(i) of the Bankruptcy Code for such obligation or transfer,
(ii) the Company is not and will not become "insolvent" within the meaning of
Section 101(32) of the Bankruptcy Code at the time of or as a result of
incurring such obligation or making such transfer, (iii) the Company is not
engaged in, and is not about to engage in, any business or transaction for which
the any property remaining with the Company constitutes "unreasonably small
capital" within the meaning of Section 548(a)(1)(B)(ii)(II) of the Bankruptcy
Code, and (iv) the Company does not intend to incur, and does not believe that
it will incur, "debts" within the meaning of Section 101(12) of the Bankruptcy
Code that would be beyond the Company's ability to pay as such debts matured.

            (t) Contemporaneous Exchange. With respect to any "transfer" (as
defined in Section 101 of the Bankruptcy Code) of property or any interest
therein made by the Company pursuant to this Agreement (including the Company's
Grant to the Note Purchaser of a Lien with respect to Pledged Loans in exchange
for an Advance to the Company to finance its purchase of such Pledged Loans),
such transfer is intended as a "contemporaneous exchange for new value" given to
the Company within the meaning of Section 547(c)(1) of the Bankruptcy Code.

            (u) Underwriting Standards. The Note Purchaser has been provided
with true and complete copies of the Underwriting Standards, a copy of which is
attached hereto as Exhibit D.

            Section 4.2 OOMC's Representations and Warranties.

            OOMC severally represents and warrants to the Note Purchaser, with
respect to each subsection of this Section 4.2 on the date of this Agreement, on
the date

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<PAGE>

of each Advance and on each date on which any Collateral is released to the
Company or substituted by the Company, that:

            (a) Due Organization. OOMC is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all corporate power and all material governmental licenses, authorizations,
consents and approvals required to carry on its business in each jurisdiction in
which its business is now conducted. OOMC is duly qualified to do business in,
and is in good standing in, every other jurisdiction in which the nature of its
business requires it to be so qualified.

            (b) Authorization; Binding Effect. OOMC has full corporate power and
authority to execute and deliver this Agreement and each other Basic Document to
which it is a party and to perform its obligations hereunder and thereunder. The
Basic Documents have been duly authorized by all necessary corporate action on
the part of OOMC and do not require any additional approval by anyone that has
not already been obtained. The Basic Documents to which OOMC is a party have
been duly executed and delivered by OOMC and constitute its valid and legally
binding obligations, enforceable against it in accordance with their respective
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization,
and similar laws of general applicability relating to or affecting creditors'
rights and to general principles of equity and equitable remedies, regardless of
whether enforcement is considered in a proceeding in equity or at law.

            (c) No Conflict. Neither the execution and delivery nor the
performance by OOMC of the Basic Documents to which it is a party will conflict
with the Articles of Incorporation or bylaws of OOMC or conflict with, result in
a breach, violation or acceleration of, or constitute a default or require any
consent under any instrument or agreement to which OOMC is a party or by which
OOMC or its properties may be bound, or any law, order, or regulation applicable
to OOMC of any Governmental Authority having jurisdiction over OOMC or its
properties, and do not and will not result in or require the creation of any
Lien with respect to any of OOMC's properties.

            (d) Approvals. Neither the execution and delivery nor the
performance by OOMC of the Basic Documents to which it is a party requires any
authorization, approval, consent, license, exemption (other than any
self-executing exemption), filing, registration, or any other action except
those which have been obtained and are in full force and effect or where the
failure to comply with the requirement would not adversely affect the delivery,
execution or performance by OOMC of the Basic Documents to which it is a party.

            (e) No Defaults. Neither OOMC nor any of its Affiliates is in
default under any mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money to which it is a party or by which
its properties are bound, which default is likely to result in a Material
Adverse Effect.

            (f) Tax Liens. There are no delinquent federal, state, city, county,
or other taxes relating to any of the Company, the Immediate Transferor, OOLWC
or

                                       32

<PAGE>

OOMC except those taxes (i) that are being contested by such Person in good
faith, (ii) that are not material in amount, (iii) with respect to which payment
has been stayed by a court of competent jurisdiction, (iv) that relate to a
Mortgage Property, or (v) that would not have a Material Adverse Effect.

            (g) No Litigation. There are no actions, suits, investigations or
other proceedings pending or, to the best knowledge of OOMC after due inquiry,
threatened against or affecting OOMC by or before any court, arbitrator, or
Governmental Authority (i) asserting the invalidity of this Agreement or any of
the other Basic Documents, (ii) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or any of the other Basic
Documents, or (iii) which is reasonably likely to materially and adversely
affect the validity, enforceability, collectibility or value of any Pledged Loan
that is being Pledged on such date or other Collateral that is being Pledged on
such date or the interest of the Note Purchaser or any Noteholder. There are no
preliminary or permanent injunctions or orders by any court or other
Governmental Authority pending adversely affecting this Agreement or any of the
other Basic Documents or any of the transactions contemplated hereby or thereby.

            (h) All Documents True and Correct. All representations and
warranties made, and all information, reports, financial statements, exhibits,
schedules, and documents or copies of documents furnished to the Note Purchaser
by or on behalf of OOMC pursuant to or in connection with the negotiation,
preparation, delivery or performance of this Agreement and the other Basic
Documents to which OOMC is a party, or with the transactions contemplated
hereby, are true and correct and, when considered as a whole, complete in every
material respect or (in the case of projections, based on reasonable estimates),
at the time when made or, if limited to a specific date, as of the date to which
they refer, and no such writing or information contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. There is no fact known to
a Responsible Officer of OOMC that, after due inquiry, could reasonably be
expected to have a Material Adverse Effect that has not been disclosed herein,
in the other Basic Documents to which OOMC is a party or in a report, financial
statement, exhibit, schedule, disclosure letter or other writing furnished to
the Note Purchaser for use in connection with the transactions contemplated
hereby or thereby.

            (i) Investment Company Act. OOMC is not, nor is it controlled by, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

            (j) Ownership of the Company. The Company is, indirectly, a
wholly-owned Subsidiary of OOMC and is wholly-owned, directly, by OOLWC.

                                       33

<PAGE>

                                    ARTICLE V

                      BREACH OF REPRESENTATION OR WARRANTY

            Section 5.1 General.

            If, after giving effect to the reduction of the Market Value of any
one or more Pledged Loans to zero in accordance with the definition of "Market
Value" by reason of the breach of a representation or warranty set forth on
Exhibit B or in Section 4.1(m) (or in Section 4.1(k) or 4.2(h) to the extent
that Section 4.1(k) or 4.2(h) relates to the representations and warranties set
forth on Exhibit B or in Section 4.1(m)), a Shortfall would exist, then:

            (i) if such breach is curable, not later than ninety (90) days after
      the earlier of the Company's or OOMC's discovery of such breach and the
      Company's or OOMC's receipt of notice to that effect from the Note
      Purchaser or any other Noteholder, or

            (ii) if such breach is not curable, within two Business Days after
      the earlier of the Company's or OOMC's discovery of such breach and the
      Company's or OOMC's receipt of notice to that effect from the Note
      Purchaser or any other Noteholder,

the Company and OOMC, jointly and severally, shall (x) if such breach is
curable, cure, or require the Loan Originator (if the breach is also a breach of
the Loan Originator's representations and warranties pursuant to Section 3.05 of
the Sale and Servicing Agreement) to cure, the breach in all material respects,
or (y) whether or not such breach is curable, (1) prepay on any Business Day the
affected Secured Notes in an amount at least equal to such Shortfall, (2) pledge
(or, in the case of OOMC, cause to be pledged) additional Qualified Substitution
Loans the Collateral Value of which equals or exceeds the amount of the
Shortfall (subject to satisfaction of the conditions set forth herein and such
other conditions as the Note Purchaser shall reasonably specify, which shall not
include the payment of any breakage fee), or (3) enforce the Company's right to
require the Loan Originator (if the breach is also a breach of the Loan
Originator's representations and warranties pursuant to Section 3.05 of the Sale
and Servicing Agreement) to repurchase the affected Pledged Loan at the
applicable Repurchase Price. If the Company and OOMC fail so to cure a Shortfall
within the applicable cure period set forth in the preceding sentence, then the
Note Purchaser or Noteholder, in addition to any other right, remedy, power or
privilege it may have in respect of such failure, may, if applicable, enforce
the Company's rights against the Loan Originator pursuant to either clause (x)
or subclause (3) of clause (y) of the preceding sentence.

            If the Company demands that the Loan Originator repurchase a Loan
that the Loan Originator is required to repurchase pursuant to the Sale and
Servicing Agreement and the Loan Originator shall fail to do so, the Company
shall nevertheless be required to cure such breach by taking other curative
action permitted by this Section 5.1.

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<PAGE>

            Without in any way derogating from the Company's obligation to
deliver to the Custodian with respect to each Pledged Loan the Custodial Loan
File required to be delivered pursuant to Section 2 of the Custodial Agreement,
the parties agree that not later than three (3) Business Days after the earlier
of (p) the Company's receipt of notice from the Note Purchaser or any Noteholder
or from the Custodian, and (q) the Company's discovery that the Custodial Loan
File required to be delivered pursuant to Section 2 of the Custodial Agreement
have not been so delivered, the Company shall (a) cure the breach in all
material respects, (b) substitute for the affected Pledged Loans one or more
Qualified Substitution Loans the aggregate Collateral Value of which equals or
exceeds the aggregate Collateral Value of the affected Pledged Loans (subject to
satisfaction of the conditions set forth herein and such other conditions as the
Note Purchaser shall reasonably specify, which shall not include the payment of
any breakage fee), or (c) or repurchase, or cause the Loan Originator (if the
breach is also a breach of the Loan Originator's representations and warranties
pursuant to Section 3.05 of the Sale and Servicing Agreement) to repurchase, the
affected Pledged Loan(s) for an amount equal to the Collateral Value thereof.

            Section 5.2 Sole Remedy.

            Apart from the determination of "Market Value" as provided in
Section 1.1, the right of the Note Purchaser to give notice of Margin Options as
provided in Section 2.11, Section 5.1 provides the sole remedy available to the
Note Purchaser with respect to the breach of any representation or warranty set
forth on Exhibit B or in Section 4.1(m) (or in Section 4.1(k) or 4.2(h), to the
extent that Section 4.1(k) or 4.2(h) applies to the representations and
warranties set forth on Exhibit B or in Section 4.1(m)). Notwithstanding the
foregoing, the parties acknowledge that (i) the Note Purchaser is the assignee
of, and may enforce directly against the Loan Originator, all rights with
respect to the Loan Originator's obligations under Sections 2.05 and 3.06 of the
Sale and Servicing Agreement, and (ii) the Note Purchaser is the assignee of,
and may enforce directly against the related Transferor, all rights and remedies
provided under any applicable Transfer Agreement in the event of a breach of any
representation or warranty with respect to a Pledged Loan.

                                   ARTICLE VI

                        CONDITIONS PRECEDENT TO ADVANCES

            Section 6.1 Receipt by the Note Purchaser of Certain Documents.

            No Advance will be made by the Note Purchaser unless, in addition to
the conditions precedent set forth in Section 6.2 having been satisfied on or
before the relevant Advance Date, the Note Purchaser shall have received:

            (i) On the initial Advance Date (i.e., the Advance Date of the
initial Secured Note issued and sold hereunder), in addition to the documents
set forth in

                                       35

<PAGE>

paragraph (ii) below, each of the following documents, each in form and
substance reasonably satisfactory to the Note Purchaser:

                  (a) A copy of this Agreement, executed and delivered on behalf
of each of the Company and the Loan Originator by a duly authorized officer of
the Company or the Loan Originator, as the case may be.

                  (b) A copy of each of the following Basic Documents, executed
and delivered be each party thereto other than the Note Purchaser, certified
(with respect to documents to which the Note Purchaser is not a party) by a duly
authorized officer of the Company as being true and correct copies of the
originals thereof:

                        (1) The Custodial Agreement;

                        (2) The Facility Administration Agreement; and the
      Agreement of Depository Bank referred to therein;

                        (3) The Loan Purchase and Contribution Agreement;

                        (4) The Sale and Servicing Agreement;

                        (5) The Issuer Administration Agreement;

                        (6) The Amended and Restated Master Disposition
      Agreement; and

                        (7) That certain Guaranty Agreement executed by H&R
      Block Corporation in favor of the Note Purchaser with respect to Wet
      Funded Loans.

                  (c) Opinions of counsel (A) with respect to certain
bankruptcy, non-consolidation and "true sale" matters, (B) to the effect that
the Note Purchaser will have a first perfected security interest in the
Promissory Notes and the Mortgages and that portion of the other Collateral in
which a security interest may be perfected by filing, (C) that the Secured Notes
will be treated as indebtedness of the Company, and (D) with respect to such
other matters the Note Purchaser may reasonably require.

                  (d) A certificate by a duly authorized officer of the Owner
Trustee of the Company ("Owner Trustee") relating to: (A) copies of the Trust
Agreement (including all amendments, supplements, and modifications thereto),
and (B) the authority of the Owner Trustee to execute and deliver on behalf of
the Company each of the Basic Documents to which the Company is or is to become
a party.

                  (e) A certificate of the Loan Originator by a duly authorized
officer of the Loan Originator relating to: (A) a copy of the resolutions of the
Loan Originator's board of directors authorizing the Loan Originator's
execution, delivery and performance of the Basic Documents to which the Loan
Originator is or is to become a

                                       36

<PAGE>

party and the transactions contemplated thereby, in form and substance
satisfactory to the Note Purchaser, which certificate shall state that the
resolutions have not been amended, modified, revoked, or rescinded; (B) copies
of the Articles of Incorporation and bylaws of the Loan Originator (including
any and all amendments, supplements, and modifications thereto); and (C) all
permits, licenses, approvals and consents required in connection with the
execution, delivery and performance by each of the Company, OOMC and OOLWC, and
the validity and enforceability against each such Person, of each of the Basic
Documents to which such Person is or is to become a party having been obtained
and being in full force and effect, without having been amended, modified,
revoked or rescinded.

                  (f) A certificate of OOLWC relating to: (A) a copy of the
resolutions of OOLWC's board of directors authorizing OOLWC's execution,
delivery and performance of the Basic Documents to which OOLWC is or is to
become a party and the transactions contemplated thereby, in form and substance
satisfactory to the Note Purchaser, which certificate shall state that the
resolutions have not been amended, modified, revoked, or rescinded; and (B)
copies of the Articles of Incorporation and bylaws of OOLWC (including any and
all amendments, supplements, and modifications thereto).

            (ii) On each Advance Date, all of the following documents, each
(except as otherwise provided below) in form and substance reasonably
satisfactory to the Note Purchaser:

                  (a) The Secured Note relating to the Advance to be made
thereon, substantially in the form of Exhibit A to the Facility Administration
Agreement, executed and delivered on behalf of the Company by a duly authorized
officer of the Facility Administrator.

                  (b) A Collateral Schedule satisfactory to the Note Purchaser
in its sole discretion.

                  (c) A copy of the Trust Receipt issued by the Custodian with
respect to the Loans identified on the Collateral Schedule.

                  (d) If requested by the Note Purchaser, copies, certified as
being true and correct copies of the originals, each Basic Document not
specifically required to be delivered as a condition precedent to such Advance.

                  (e) A release of each Lien, if any, existing with respect to
any Loan (other than a Wet Funded Loan) being Pledged on such Advance Date
(other than the Lien in favor of the Note Purchaser created hereby), duly
executed by or on behalf of the holder of such Lien.

                  (f) A copy of a direction from the Company addressed to and
acknowledged by the Servicer (it being understood that, pursuant to the Sale and
Servicing Agreement, the Servicer shall service and administer each Loan being
added to the Collateral) stating that after the Servicer is notified in writing
by the Note Purchaser

                                       37

<PAGE>

that an Event of Default has occurred and is continuing, the Servicer shall no
longer accept any instructions from the Company that involve any material
modification of any Loan, whether by way of amendment, consent, forbearance, or
otherwise, unless the direction is in writing and consented to in writing by the
Note Purchaser.

                  (g) To the extent not previously delivered to the Note
Purchaser, a copy of each agreement with a service provider that the Company is
required to obtain pursuant to Section 7.1(k).

                  (h) With respect to any Advance for which the Borrowing Base
includes any Wet Funded Loan:

                        (x) at least one Business Day prior to the related
      Advance Date, the Note Purchaser shall have received notice of the
      Estimated Note Issuance Proceeds;

                        (y) on or prior to the related Advance Date, the Note
      Purchaser shall have received the related Wet Funding Schedule.

                  (i) A certificate from the Company stating that it has not
experienced any material adverse change or material adverse event since April 1,
2000.

            Section 6.2 Conditions Precedent to all Advances and Substitutions.

            The making of any Advance or the substitution of any Collateral is
subject (in addition to (i) the satisfaction of the applicable conditions
precedent set forth in Section 6.1 and, (ii) in the case of a substitution of
Collateral, the satisfaction of the conditions set forth in Section 6.3) to the
satisfaction, on or before the relevant Advance Date or date of such
substitution of Collateral, of the following conditions precedent:

            (a) Representations and Warranties. Each of the representations and
warranties made by the Company and OOMC in this Agreement shall be true and
correct in all material respects on that date, both before and after giving
effect to the Advance or the substitution, as though made on that date.

            (b) No Default; No Interruption of Funding Period. Before and after
giving effect to the Advance or the substitution, no Default or Event of Default
shall have occurred and be continuing; the Funding Period under the Sale and
Servicing Agreement shall be in effect; and no default or event of default shall
have occurred and be continuing under either the Greenwich Facility or the B of
A Facility (as defined in the Disposition Agreement).

            (c) Certificates. Both immediately prior to each Advance and also
after giving effect thereto and to the intended use of the proceeds thereof, the
representations and warranties made by the Company in each of the Basic
Documents, shall be true, correct and complete on and as of the date of the
making of such Advance in all material respects with the same force and effect
as if made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a

                                       38

<PAGE>

specific date, as of such specific date). The Note Purchaser shall have received
a certificate signed by a Designated Agent of the Company certifying as to the
truth, accuracy and completeness of the above, which certificate shall
specifically include a statement that the Company is in compliance with all
governmental licenses and authorizations and, if relevant under applicable law,
is qualified to do business and in good standing in all required jurisdictions.

            (d) No Violation. The consummation of the transactions contemplated
hereby and by the other Basic Documents shall not violate or conflict with, nor
involve the Note Purchaser in a violation of, any applicable law, rule,
regulation or order.

            (e) Due Diligence Fees and Other Expenses. To the extent billed, the
due diligence fees related to such Advance or substitution and the legal fees
and other "out-of-pocket" expenses of the Note Purchaser in connection with the
purchase of the related Secured Note (for which the Company shall be billed
quarterly) shall have been paid in full (subject to any previously agreed upon
maximum) in cash, as specified in Section 8.3.

            (f) Information. All information provided by the Company to the Note
Purchaser concerning each of the Loans to be Pledged on such Advance Date or
date of substitution shall be true and correct in all material respects as of
such Advance Date or date of substitution.

            (g) Proceedings. All corporate and legal proceedings and all
instruments in connection with such Advance Date or date of substitution, or
otherwise in connection with this Agreement and the transactions contemplated
hereby, shall be reasonably satisfactory in form and substance to the Note
Purchaser, and the Note Purchaser shall have received from the Company copies of
all documents (including records of corporate proceedings) relevant to the
transactions herein contemplated as the Note Purchaser may reasonably have
requested. Such documents shall include, in addition to the documents listed in
Section 6.1, a certificate of the Secretary or Assistant Secretary of the
Company certifying the names and signatures of the officers authorized on its
behalf to execute this Agreement and any other documents to be delivered by it
hereunder on such Advance Date or date of substitution.

            (h) Servicing Reports. The Note Purchaser shall have received the
most recent available standard servicing or loan reports in summary form, if
any, with respect to all of the Pledged Loans.

            (i) Due Diligence. The Note Purchaser or its designee shall have
been authorized by the Company, the Immediate Transferor, OOLWC and OOMC, as may
be appropriate, to perform both (i) its standard loan review of each pool of
Loans to be Pledged, which may entail a loan-by-loan review, at the discretion
of the Note Purchaser, and (ii) prior to the initial Advance Date, or at the
discretion of the Note Purchaser, a detailed review of OOMC's underwriting and
servicing procedures, template legal documents and other relevant materials.

                                       39

<PAGE>

            (j) Limitations. The initial Principal Amount of the Secured Note
relating to the Advance, when added to the aggregate Principal Amount of all
issued and outstanding Secured Notes, shall not exceed either (i) the Commitment
Amount, or (ii) the Borrowing Base, and the Loans to be purchased with the
proceeds of such Advance shall not, when aggregated with all other Pledged
Loans, cause any of the Applicable Limitations to be exceeded.

            (k) Servicing. The Servicer (i) shall not be in material default of
its servicing, administrative or other obligations under the Sale and Servicing
Agreement, and (ii) shall be an Eligible Servicer (as defined therein).

            Section 6.3 Additional Collateral.

            No pledge of additional or substitute Loans shall be accepted unless
the Company shall have delivered to the Custodian the related Custodial Loan
File in accordance with the Custodial Agreement and the Custodian shall have
delivered a replacement Trust Receipt, and amended the Collateral Schedule, with
respect to each of the Custodial Loan Files (or, if applicable, Promissory
Notes) delivered.

                                   ARTICLE VII

                                    COVENANTS

            Section 7.1 Affirmative Covenants.

            Until (i) the Commitment Term has ended, (ii) all Obligations have
been paid in full and (iii) all other obligations of the Company under the Basic
Documents have been performed in full, the Company, covenants and agrees that it
will do all of the following:

            (a) Existence; Conduct of Business. Continue to engage in the
business now conducted by it and preserve and maintain in full force and effect
its existence and all permits, licenses, approvals, consents, rights,
privileges, and franchises necessary or desirable in the conduct or transaction
of its business or the ownership of its properties.

            (b) Taxes. Pay and discharge, or cause the Servicer to pay and
discharge, all taxes, levies, liens, and other charges on its assets and on the
Collateral that, in each case, in any manner would create any lien or charge
upon the Collateral.

            (c) Laws. Comply in all material respects with all laws, ordinances,
rules, and regulations of any federal, state, municipal, or other public
authority having jurisdiction over the Company or any of its assets.

            (d) Name and Locations. Advise the Note Purchaser in writing at
least thirty (30) days prior to the opening of any new chief executive office or
the closing of any such office and of any change in the Company's name or the
places where the books and records pertaining to the Collateral are kept.

                                       40

<PAGE>

            (e) Records. Maintain records with respect to the Collateral and the
conduct and operation of its business in conformity with general standards in
the subprime mortgage loan servicing industry and with no less a degree of
prudence than if the Collateral were held by the Company for its own account,
and furnish the Note Purchaser, upon reasonable request by the Note Purchaser,
with information with respect to the Collateral.

            (f) Reports. Provide, or cause the Servicer to provide, to the Note
Purchaser a magnetic tape, floppy disk or electronic transmission, as the Note
Purchaser shall elect from time to time, containing the Servicer's standard
monthly remittance report, which report shall be in substantially the form
required under the Sale and Servicing Agreement .

            (g) Pay Obligations. Pay, discharge, or otherwise satisfy before
they become delinquent all material obligations of whatever nature, except when
(i) the failure to pay, discharge or satisfy such obligations before they become
delinquent is consistent with Accepted Servicing Practices or (ii) the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and the Company has established adequate reserves with respect
thereto and no liens have attached to any portion of the Collateral.

            (h) Notices. Promptly, and in any event within one Business Day of
the occurrence thereof, notify the Note Purchaser in writing of (i) the
occurrence of any event of default by any Person under any indenture, mortgage,
deed of trust, agreement, or other instrument or contractual obligation to which
the Company or any Affiliate of the Company is a party or by which its
properties may be bound or affected, if such occurrence could reasonably be
expected to have a Material Adverse Effect, or (ii) the occurrence of any
Default or Event of Default.

            (i) Ownership of Company. At all times be wholly-owned (i) directly,
by OOLWC, and (ii) indirectly, by OOMC.

            (j) Financial Statements. Furnish or cause to be furnished to the
Note Purchaser:

                  (i) Within 90 days after the last day of each fiscal year of
      OOMC, consolidated and consolidating statements of income (and, in the
      case of the consolidated statement, sources and uses of funds) for OOMC
      for such year and consolidated and consolidating balance sheets for OOMC
      as of the end of such year, presented fairly in all material respects in
      accordance with GAAP and accompanied by (A) an unqualified report of a
      firm of independent certified public accountants of nationally recognized
      standing and (B) a copy of any management letter issued by such certified
      public accountants in connection with the preparation of their report; and

                  (ii) Within 45 days after the last day of each fiscal quarter
      of OOMC, (A) unaudited consolidated and consolidating statements of income
      for

                                       41

<PAGE>

      OOMC for such quarter, and unaudited consolidated and consolidating
      balance sheets for OOMC as of the end of such quarter, and (B) a
      certificate of a Responsible Officer of OOMC stating that such financial
      statements are presented fairly in all material respects and in accordance
      with GAAP, subject to year-end audit adjustments, and further certifying
      that neither OOMC nor any of its Subsidiaries is in default under the
      terms and conditions of the Basic Documents or any other material
      agreement evidencing or securing any indebtedness of such Person.

            (k) Sale and Servicing Agreement. Cause the Pledged Loans to be
serviced and administered by the Servicer (including any Subservicers) in
substantial compliance with Accepted Servicing Practices and, at all times,
enforce the obligations of the Servicer (including any Subservicers) under the
Sale and Servicing Agreement.

            (l) Collections. Cause each of its agents (including the Servicer)
to agree to hold in trust and to deposit, in accordance with its normal and
customary practices and procedures, all Collections received from time to time
in respect of the Pledged Loans (net of Servicing Fees and ancillary amounts
that are payable to the Servicer under the Sale and Servicing Agreement) to the
Collection Account maintained pursuant to the Facility Administration Agreement
or to such other account or accounts as may be specified and maintained by the
Note Purchaser or its designee from time to time.

            (m) Certain Agreements. Comply in all material respects with the
terms of both the Custodial Agreement and the Facility Administration Agreement.

            (n) Material Modifications. Except as otherwise permitted in the
Sale and Servicing Agreement, agree to any material modification of any Pledged
Loan only with the prior written consent of the Note Purchaser.

            (o) Custodial Loan Files. Deliver all Custodial Loan Files to the
Custodian as provided in the Custodial Agreement.

            (p) Bankruptcy Petitions. Cause each service provider engaged by the
Company that is an Affiliate of the Company to agree and covenant that such
service provider shall not, prior to a date which is one year and one day after
the payment in full of all Obligations (i) petition or otherwise invoke,
directly or indirectly, the process of any Governmental Authority for the
purpose of (A) commencing or sustaining a case against the Company under any
federal or state bankruptcy, insolvency or similar law or (B) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Company or any substantial part of its property or (C)
ordering the winding up or liquidation of the affairs of the Company, or (ii)
acquiesce to any of the foregoing.

            (q) Purpose. Use the funds derived from issuing and selling the
Secured Notes solely to purchase Loans and other Collateral from the Immediate
Transferor.

                                       42

<PAGE>

            (r) Inspections. Permit representatives of the Note Purchaser, at
the Note Purchaser's expense (except as otherwise provided herein with respect
to any due diligence activities undertaken by or for the Note Purchaser) at any
reasonable time prior to the occurrence of an Event of Default and at the
Company's expense at any time thereafter, to (i) visit and inspect any of the
Company's properties and examine and make copies of or abstracts from any of its
books and records in any way relating to the Collateral or to the Company's
compliance with the provisions of this Agreement or any other Basic Document at
any reasonable time and as often as may reasonably be desired by the Note
Purchaser (but, prior to the occurrence of any Default or Event of Default, only
upon not less than five Business Days' prior notice), and (ii) discuss the
business, operations, properties, assets and financial and other condition of
the Company with the Company's officers and employees of the Company and with
its independent certified public accountants (it being agreed that the Company
shall cause such officers, employees and accountants to be available for such
purposes and to cooperate fully with such representatives); provided, however,
that the results of any such visit, inspection, examination, discussion or
audit, to the extent such results are proprietary and non-public, shall be kept
confidential by the Note Purchaser and its Affiliates except (x) as may be
required by law or regulation or by any governmental agency or regulatory body
having authority over the Note Purchaser or its Affiliates, (y) to the extent
that such information may be communicated to the legal counsel, auditors and
other advisers of the Note Purchaser or its Affiliates, and (z) in connection
with any legal or other proceedings for the enforcement of any right, remedy,
power or privilege of the Note Purchaser under any Basic Document or for the
protection of the Note Purchaser's interests thereunder.

            (s) ERISA. Promptly give the Note Purchaser written notice upon
becoming aware that the Company is not in compliance in all material respects
with ERISA or that any Lien exists on any of the Pledged Loans under ERISA.

            (t) Company's Books and Records. Keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities.

            (u) Bringdown Certificates, Etc. Supply the Note Purchaser with
bring-down good standing certificates, legal opinions, officer's certificates
and similar such items, promptly upon the Note Purchaser's reasonable request.
The Note Purchaser will not, however, request such items more frequently than
once in any period of 90 consecutive days unless either a Default or an Event of
Default shall have occurred and be continuing.

            (v) Recordings and Filings. Within ten (10) days of the initial
Advance Date, file all material instruments and documents (including UCC-1
financing statements and continuation statements) required to be filed to create
in favor of the Note Purchaser a perfected Lien with respect to the Collateral
shall have been duly prepared (and, if applicable executed or acknowledged) by
the Company and delivered to the Note Purchaser in the proper form for filing in
each office in each relevant jurisdiction.

                                       43

<PAGE>

            Section 7.2 Negative Covenants.

            Until (i) the Commitment Term has ended, (ii) all Obligations have
been paid in full and (iii) all other obligations of the Company under the Basic
Documents have been performed in full, the Company covenants and agrees that it
will not:

            (a) Liens. Create, incur, assume, or suffer to exist, any Lien with
respect to any of the Collateral whether now owned or existing or hereafter
acquired or arising, other than liens in favor of the Note Purchaser, or permit
any financing statement (except any financing statements in favor of the Note
Purchaser) or assignment (except for any assignments in favor of the Note
Purchaser) to be on file in any public office with respect thereto.

            (b) Dispositions. Sell, lease, license, transfer, assign, convey,
dispose of, alienate, terminate or relinquish any of the Company's right, title
or interest in or to the Collateral, except as specifically provided herein.

            (c) Mergers. Either (i) merge with or into or consolidate with any
other Person, regardless of whether the Company is the surviving entity in such
merger or consolidation, or transfer all or substantially all of its assets to
any other Person to accomplish a similar purpose, or (ii) wind up, liquidate, or
dissolve, or (iii) agree to do any of the foregoing.

            (d) Amendments. Without obtaining the prior written approval of the
Note Purchaser in each case, either (i) amend, supplement or otherwise modify
(or agree to amend, supplement or otherwise modify) the Company's charter,
bylaws or other organizational documents (unless such amendment, supplement or
other modification cannot reasonably be expected to have a Material Adverse
Effect) or (ii) amend, supplement or otherwise modify (or agree to amend,
supplement or otherwise modify, or, to the extent its consent is required
therefor, consent to any amendment or supplement to or modification of) the Sale
and Servicing Agreement or any other Basic Document, or any other document,
instrument or agreement in any way relating to the transactions contemplated
hereunder or thereunder.

            (e) Structural Changes. Change its name, chief executive office, or
location where its books and records are kept with respect to the Collateral, on
less than thirty (30) days' prior written notice to the Note Purchaser; or.,
except with the Note Purchaser's prior written consent, change its structure or
ownership.

            (f) Underwriting Standards. Prior to pledging the affected Loans
hereunder, approve any proposed amendments, supplements or other modifications
to the Underwriting Standards that are material in nature without first
providing the Note Purchaser with a copy of such proposed modifications;
provided that if, within 15 Business Days after receipt of a copy thereof, the
Note Purchaser informs the Company that it disapproves of one or more of such
proposed modifications, "Underwriting Standards" shall mean, for purposes of
this Agreement and the other Basic Documents, the Underwriting Standards
previously in effect, modified only to the extent of such

                                       44

<PAGE>

modifications as have not been disapproved by the Note Purchaser pursuant to
this Subsection 7.2(f).

            (g) Use of Proceeds. Use the proceeds of the Advances made pursuant
to this Agreement, directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for the purpose of reducing or retiring any debt
which was originally incurred to purchase or carry margin stock or for any other
purpose which might constitute the Advances under this Agreement as being
"purpose credit" within the meaning of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.

            (h) Other Debts. Incur or otherwise become liable for any debt
obligation for money borrowed (other than debt arising under this Agreement), or
for any other (i.e., debt arising for reasons other than money borrowed)
material debt obligations other than amounts owed to the Immediate Transferor in
consideration of assets purchased by the Company under the Sale and Servicing
Agreement or pursuant to the Disposition Agreement), without first obtaining the
specific written consent of the Note Purchaser (which consent may be given or
withheld in the Note Purchaser's sole discretion).

            (i) Unauthorized Assignment. Attempt to assign this Agreement or any
rights hereunder without first obtaining the specific written consent of the
Note Purchaser (which consent may be given or withheld in the Note Purchaser's
sole discretion).

                                  ARTICLE VIII

                        INDEMNIFICATION AND REIMBURSEMENT

            Section 8.1 Indemnification.

            (a) The Company hereby covenants and agrees to indemnify, defend and
hold harmless the Note Purchaser and its assignees hereunder from and against
any and all loss, liability, damage, judgment, claim, deficiency, or expense
(including interest, penalties, reasonable attorneys', expert witnesses' and
consultants' fees and disbursements and amounts paid in settlement) to which the
Note Purchaser or any such assignee may become subject insofar as such loss,
liability, damage, judgment, claim, deficiency, or expense arises out of or is
based upon (i) a breach by the Company of its representations, warranties and
covenants contained herein or in any other Basic Document or (ii) any
information certified in any schedule or certificate delivered by the Company
hereunder or in connection with this Agreement or the other Basic Documents
being untrue in any material respect at any time, in each case, except to the
extent provided in Section 5.1 with respect to any breach of the representations
and warranties set forth on Exhibit B or in Section 4.1(m) (or in Section 4.1(k)
or 4.2(h), to the extent that Section 4.1(k) or 4.2(h) applies to the
representations and warranties set forth on

                                       45

<PAGE>

Exhibit B or in Section 4.1(m)) and except to the extent that such loss,
liability, damage, judgment, claim, deficiency, or expense is the result of the
indemnified party's own negligence, willful misfeasance or bad faith.

            (b) OOMC hereby covenants and agrees to indemnify, defend and hold
harmless the Note Purchaser and its assignees hereunder from and against any and
all loss, liability, damage, judgment, claim, deficiency, or expense (including
interest, penalties, reasonable attorneys', expert witnesses' and consultants'
fees and disbursements and amounts paid in settlement) to which the Note
Purchaser or any such assignee may become subject insofar as such loss,
liability, damage, judgment, claim, deficiency, or expense arises out of or is
based upon (i) a breach by OOMC of its representations, warranties and covenants
contained herein or in any other Basic Document or (ii) any information
certified in any schedule or certificate delivered by OOMC hereunder or in
connection with this Agreement or the other Basic Documents being untrue in any
material respect at any time, in each case, except to the extent provided in
Section 5.1 with respect to any breach of the representations and warranties set
forth on Exhibit B or in Section 4.1(m) (or in Section 4.1(k) or 4.2(h), to the
extent that Section 4.1(k) or 4.2(h) applies to the representations and
warranties set forth on Exhibit B or in Section 4.1(m)) and except to the extent
that such loss, liability, damage, judgment, claim, deficiency, or expense is
the result of the indemnified party's own negligence, willful misfeasance or bad
faith.

            Section 8.2 Taxes and Other Governmental Charges.

            Any tax, fee, governmental charge or other liability (excluding any
tax liability arising from the receipt by the Note Purchaser of interest income
on any Advance) incurred by the Note Purchaser as a result of the Note
Purchaser's status as the Note Purchaser under this Agreement or beneficial
holder or secured party with respect to the Collateral shall be borne, jointly
and severally, by the Company. Until the Commitment Term has ended and all of
the Obligations have been paid in full, the Company and OOMC jointly and
severally agree to indemnify and defend and hold the Note Purchaser harmless
from and against any tax, fee, governmental charge or other liability inuring to
the Note Purchaser as a result of the Note Purchaser's status as the Note
Purchaser under this Agreement or beneficial holder or secured party with
respect to the Collateral (except any tax liability arising from the receipt by
the Note Purchaser of interest income on any Advance). The Company and OOMC
jointly and severally agree to indemnify and defend and hold harmless the Note
Purchaser from and against all liabilities and expenses to which the Note
Purchaser may become subject relating to any fees, taxes or liability to any
third party resulting from any action taken or omitted by or upon instructions
of the Company or OOMC with respect to the Collateral.

            Section 8.3 Reimbursement of Expenses.

            The Company and OOMC hereby jointly and severally covenant and agree
to pay (or to reimburse the Note Purchaser promptly upon demand therefor) all
reasonable out-of-pocket costs and expenses of the Note Purchaser incident to
this Agreement and the other Basic Documents and the transactions contemplated
hereunder

                                       46

<PAGE>

and thereunder, including (i) all reasonable fees, expenses and disbursements of
the Note Purchaser's counsel incurred in connection with negotiation, drafting
and subsequent administration of this Agreement and the other Basic Documents
and the transactions contemplated hereunder and thereunder, provided that the
Company and OOMC shall not be required to pay or reimburse under this clause (i)
in respect of the negotiation and drafting of the Basic Documents any amount in
excess of $75,000, (ii) the costs and expenses of any due diligence conducted by
the Note Purchaser in connection with this Agreement and the other Basic
Documents and the transactions contemplated hereunder and thereunder, including
the cost of any third-party contract underwriter acceptable to the Note
Purchaser (such costs and expenses of due diligence not to exceed $7,500 per any
calendar month in connection with the Note Purchaser's ongoing due diligence
activities hereunder; (iii) all fees and charges of the Custodian under the
Custodial Agreement, including those fees relating to the Custodian's review of
the Custodial Loan Files relating to the Pledged Loans; (iv) all fees and
charges of the Facility Administrator under the Facility Administration
Agreement; and (v) all costs incurred by the Note Purchaser in connection with
the perfection of any Lien with respect to the Collateral granted by the Company
hereunder, including the costs of filing UCC-1 financing statements and any
other necessary or appropriate documents. In addition, the Company and OOMC,
jointly and severally, shall pay (or reimburse the Note Purchaser promptly upon
demand therefor) all reasonable costs and expenses (including reasonable
attorneys', expert witnesses' and consultants' fees and disbursements) of the
Note Purchaser incident to the enforcement of the Note Purchaser's rights,
remedies, powers or privileges or the Company's or OOMC's obligations hereunder
or under any Secured Note or any other Basic Document or to the protection of
the Note Purchaser's interests hereunder or thereunder, whether by judicial
proceedings or otherwise, including in connection with bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceedings involving
the Company.

            Section 8.4 Survival.

            The obligations of the Company and OOMC under this Article VIII
shall be effective and enforceable whether or not any Secured Note is
outstanding hereunder and, in all events, shall survive the execution, delivery,
performance and termination of this Agreement.

                                   ARTICLE IX

                                EVENTS OF DEFAULT

            Section 9.1 Events of Default.

            Each of the following shall constitute an "Event of Default" with
respect to all of the issued and outstanding Secured Notes, whether it occurs
voluntarily or involuntarily, by operation of law or otherwise:

            (a) Nonperformance. Any failure (i) to pay the interest due and
payable on any Secured Note on any Payment Date or other relevant date
(including the

                                       47

<PAGE>

Redemption Date), (ii) to pay any principal or other amount due and payable
under any Secured Note on any Payment Date or other relevant date (including the
Redemption Date), (iii) to pay the Minimum Usage Fee as and when provided in the
Pricing Side Letter, (iv) to pay any other amount due under this Agreement or
(v) to perform or observe any other provision of this Agreement (other than one
specifically addressed in any other provision of this Section 9.1), which
failure shall, (x) in the case of clause (i), (ii) or (iii) above, continue for
more than one Business Day after oral (including telephonic) or written notice
of such failure to the Company by the Note Purchaser or any Noteholder, or (y)
in the case of clause (iv) or (v), continue for more than thirty (30) days after
written notice of such failure to the Company by the Note Purchaser or any
Noteholder.

            (b) Failure to Maintain Security. The Noteholders shall cease to
have a first priority perfected Lien with respect to the Collateral or any
material portion thereof.

            (c) Failure of OOMC to Maintain Requisite Financial Condition. (i)
At any time during this Agreement, OOMC shall fail to (A) possess sufficient net
capital and liquid assets (or ability to access the same) to satisfy its debts
and other obligations as they become due in the normal course of business, (B)
maintain a minimum of Tangible Net Worth of $425 million as of any day, (C)
maintain a minimum Net Income of $1.00 for each quarter and the three (3)
quarters preceding such quarter; and (D) maintain a ratio of 1.0 or greater at
any time pursuant to the Capital Adequacy Test, attached as Exhibit E hereto; or
(ii) at any time during the Commitment Term, (A) maintain a minimum balance of
cash or cash equivalents, not subject to any Liens, of $20 million or maintain a
liquidity facility with Block Financial in an amount not less than $150,000,000,
and (B) have a Non-Warehouse Leverage Ratio of no more than 0.5x.

            (d) Act of Insolvency. The occurrence of an Act of Insolvency
involving the Company or any Affiliate of the Company.

            (e) Other Creditors. The Company shall enter into any agreement,
other than this Agreement and the other Basic Documents, to borrow money from
any Person, or shall incur any other material debt obligation to any Person for
a reason other than money borrowed, and other than amounts owed to the Immediate
Transferor in consideration of assets purchased by the Company under the Asset
Purchaser Agreement, in each case without first obtaining the specific written
consent of the Note Purchaser (which consent may be given or withheld in the
Note Purchaser's sole discretion).

            (f) Immediate Transferor, OOLWC or OOMC Defaults. Either of the
following shall occur: (i) the Immediate Transferor, OOLWC or OOMC shall default
under any of the Basic Documents to which it is a party, any applicable grace
period set forth thereon shall have expired, and such default, in the Note
Purchaser's good faith business judgment, is likely to have a Material Adverse
Effect; or (ii) any recourse debt (as distinguished from asset-backed debt other
than secured and warehouse debt that is recourse debt) on which the Immediate
Transferor, OOLWC, OOMC or any Affiliate of OOMC is accelerated by the lender(s)
thereunder as a result of the occurrence of any

                                       48

<PAGE>

event of default thereunder and such acceleration, in the Note Purchaser's
commercially reasonable business judgment, is likely to have a Material Adverse
Effect; provided that any waiver of such event of default by the lender(s)
thereunder shall automatically constitute a waiver of the corresponding Event of
Default hereunder.

            (g) Merger or Consolidation. The Company shall cease to be wholly
owned by OOLWC, or indirectly wholly-owned by OOMC, as required by Section
7.1(i), or shall take any action prohibited by Section 7.2(c), or a Change in
Control shall occur, in any such case, without the prior written consent of the
Note Purchaser.

            (h) Final Judgment. A final, non-appealable judgment by any
competent court in the United States for the payment of money in an amount in
excess of $3,000 is rendered against the Company, and the same remains
undischarged and unpaid for a period of sixty (60) days during which execution
of the judgment is not effectively stayed.

            (i) Breach of Representation. Any representation or warranty (other
than one set forth on Exhibit B or in Section 4.1(m) (or in Section 4.1(k) or
4.2(h), to the extent that Section 4.1(k) or 4.2(h) applies to the
representations and warranties set forth on Exhibit B or in Section 4.1(m)) made
by the Company or OOMC herein shall have been incorrect or untrue in any respect
when made or repeated (or deemed made or repeated), and the condition resulting
in that representation or warranty having been incorrect or untrue shall
continue unremedied for thirty (30) days after written notice of the condition
to the Company or OOMC by the Note Purchaser.

            (j) Breach of Covenant. The Company, the Immediate Transferor, OOLWC
or OOMC (in any capacity) shall breach in any material respect any covenant made
by it in any other Basic Document, such breach shall continue unremedied for
thirty (30) days after written notice of the condition to the Company, the
Immediate Transferor, OOLWC or OOMC (as the case may be) by the Note Purchaser,
and such breach, in the Note Purchaser's good faith business judgment, is likely
to have a Material Adverse Effect;

            (k) Repurchase or Cure Obligation. The Company and OOMC shall fail
to satisfy their obligations set forth in Section 5.1.

            (l) Reserved.

            (m) Impairment of Rights. Except with the prior written consent of
the Note Purchaser, any Affiliate Transfer Agreement or Transfer Agreement is
amended, supplemented or modified in any respect that has, or could reasonably
be expected to have, a Material Adverse Effect, including, without limitation,
any such occurrence that adversely affects the Company's, or the Note
Purchaser's, right to enforce any or all of the remedies under the Sale and
Servicing Agreement, any Affiliate Transfer Agreement or any Transfer Agreement
in respect of a breach of the representations and warranties of the transferor
thereunder with respect to any Loan.

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<PAGE>

            (n) Election by OOLWC Not to Effect any Minimum Margin Contribution.
There shall occur any event provided to constitute an Event of Default in
Section 2.11.

                                    ARTICLE X

                                    REMEDIES

            Section 10.1 Acceleration; Action Regarding Collateral.

            Upon the occurrence of any Event of Default, the Note Purchaser,
without demand of performance or other demand or notice (except as specifically
provided herein) of any kind to the Company or any other Person, all of which
are hereby expressly waived, may (in addition to exercising any other right,
remedy, power or privilege it may have in respect of such occurrence, under this
Agreement, any other Basic Document, under applicable law or otherwise): (i)
declare the Obligations to be immediately due and payable, and the Obligations
shall forthwith be immediately due and payable and the Commitment Term shall
terminate; provided that, upon the occurrence of an Event of Default described
in Section 9.1(d), the Obligations shall automatically and immediately become
due and payable and the Commitment Term shall terminate; and (ii) forthwith
apply (or cause to be applied) the cash, if any, then held by it as part of the
Collateral to the payment of any of the Obligations. If no cash is being held as
part of the Collateral or the cash so applied is not sufficient to pay in full
all the Obligations, the Note Purchaser may thereafter collect, receive,
appropriate, retain, and realize upon (or cause to be collected, received,
appropriated, retained, and realized upon) any of the Collateral. Upon the
occurrence of an Event of Default, the Note Purchaser may forthwith do, or cause
to be done, any of the following: sell, assign, give an option or options to
purchase, contract to sell, or otherwise dispose of and deliver any of the
Collateral in one or more parcels at such public or private sale or sales, at
such place or places, at such price or prices, and upon such other terms and
conditions, as the Note Purchaser may deem best. The Note Purchaser shall in any
event act, and cause the Facility Administrator, in its capacity as collateral
agent and secured party for the benefit and on behalf of the Note Purchaser, to
act, in all respects in a commercially reasonable manner. Such dispositions may
be for cash or on credit or for future delivery without assumption of any credit
risk. In any such disposition the Note Purchaser may purchase all or any part of
the Collateral. In any such disposition the Note Purchaser may deliver, assign,
and transfer to the transferee (or cause to be so delivered, assigned, and
transferred) the Collateral so sold. Each transferee, upon any such disposition,
shall hold the property so disposed of absolutely free from any claim or right
of the Company any kind, including any equity or rights of redemption. The
Company agrees that the Note Purchaser need give (or cause to be given) only
such notice of the time and place of any public or private sale (including any
adjourned private sale) or other intended disposition as may be required by
market conditions and standards of commercial reasonableness and that the Note
Purchaser need not in any event give more than five (5) Business Days' notice
that the sale or other disposition is to take place.

                                       50

<PAGE>

            The Note Purchaser shall not be obligated to consummate (or cause to
be consummated) any sale pursuant to any notice of sale. The Note Purchaser may,
without notice or publication, adjourn any public or private sale, or cause it
to be adjourned, from time to time by announcement at the time and place fixed
for the sale. The sale may then be made at any time or place to which it was
adjourned. If any of the Collateral is sold on credit or for future delivery,
the Collateral so sold may be retained by the Note Purchaser or the Facility
Administrator until the selling price is paid by the purchaser. Neither the Note
Purchaser nor the Facility Administrator shall incur any liability if the
purchaser fails to take up and pay for the Collateral so sold and, in that case,
the Collateral may again be sold upon appropriate notice. The Note Purchaser
may, instead of exercising the power of sale (or causing it to be exercised),
proceed by a suit at law or in equity to foreclose its Lien and sell (or cause
to be sold) any of the Collateral under a judgment or decree of a court of
competent jurisdiction.

            Section 10.2 Deficiency.

            If the proceeds of sale, collection, foreclosure, or other
realization on the Collateral are insufficient to cover the costs and expenses
of such realizing on the Collateral and the payment in full of the Obligations,
the Company shall remain liable for any deficiency.

            Section 10.3 Private Sale.

            The Note Purchaser shall incur no liability as a result of the sale
of any of the Collateral at any private sale. The Note Purchaser shall in any
event act, and cause the Facility Administrator, in its capacity as collateral
agent and secured party for the benefit and on behalf of the Note Purchaser, to
act, in a commercially reasonable manner. The Company hereby waives (a) any
claims against the Facility Administrator, the Note Purchaser or any other
Noteholder arising because the price at which the Collateral may have been sold
at a private sale was less than the price that might have been obtained at a
public sale or was less than the aggregate amount of the Obligations, even if
the Note Purchaser accepts (or causes to be accepted) the first offer received
and does not offer (or cause to be offered) the Collateral to more than one
offeree and (b) all rights of redemption, stay, or appraisal that it has under
any rule of law or (to the extent permitted) statute, whether now existing or
hereafter adopted.

            Section 10.4 Default Rate of Interest.

            To the extent permitted by applicable law, interest shall accrue at
the Default Rate on any amounts owing by the Company hereunder from the date the
Company becomes liable for such amounts hereunder (or, in the case of principal
of or interest on any Secured Note, from the date such amount first becomes due
and payable hereunder) until such amounts are (i) paid in full by the Company or
(ii) satisfied in full by the exercise of the Note Purchaser's rights hereunder.

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<PAGE>

            Section 10.5 Application of Proceeds.

            The proceeds of any sale or other realization of any of the
Collateral, and any other cash at the time held by the Note Purchaser (itself or
through its custodians, bailees or agents, including the Facility Administrator)
under this Agreement, shall be applied by the Note Purchaser in the following
order of priority:

                  First, to the payment of the costs and expenses of the sale
      and all expenses (including the reasonable fees and expenses of counsel,
      expert witnesses and consultants), liabilities, and advances made or
      incurred by the Note Purchaser in connection therewith.

                  Second, to the payment of all accrued interest under any
      Secured Note due or past due.

                  Third, to the payment of principal upon all of any Secured
      Note due or past due.

                  Fourth, to the payment of all other amounts owing under this
      Agreement.

                  Fifth, to the payment of all other amounts owed by the Company
      or any Affiliate of the Company to the Note Purchaser or any Affiliate of
      the Note Purchaser under any of the other Basic Documents.

                  Sixth, to the payment to the Company, or to such other Person
      as a court of competent jurisdiction may direct, of any surplus then
      remaining from the proceeds and other cash.

            Section 10.6 Payments on Collateral to the Company.

            Upon the occurrence of an Event of Default, all rights of the
Company to receive any payments from the Collateral that it would otherwise be
authorized to receive shall cease, and those rights shall become vested in the
Facility Administrator, as collateral agent and secured party for the benefit
and on behalf of the Note Purchaser. The Facility Administrator shall then have
the sole right to receive and hold those payments. Any payments that are
received by the Company contrary to these provisions shall be received in trust
for the benefit of the Note Purchaser, shall be segregated from other funds of
the Company, and shall be promptly paid to, or in accordance with the
instructions of, the Note Purchaser.

            Section 10.7 Cross-Collateralization; Right of Set-Off.

            The Note Purchaser may, in its sole discretion upon the occurrence
of an Event of Default, proceed against any assets held by it or on its behalf
under this Agreement or any other agreement between the Note Purchaser and the
Company and shall have a right of set-off against any amounts owed by the Note
Purchaser to the Company under this Agreement or any other agreement between the
Note Purchaser and

                                       52

<PAGE>

the Company. In addition, the Note Purchaser may, in its sole discretion upon
the occurrence and during the continuation of an event of default under any
other agreement between the Note Purchaser and the Company, proceed against any
Collateral (or cause it to be proceeded against) and shall have a right of
set-off against any amounts owed by the Note Purchaser to the Company under this
Agreement.

                                   ARTICLE XI

                                  MISCELLANEOUS

            Section 11.1 Amendment.

            None of the Basic Documents, including this Agreement, the Sale and
Servicing Agreement, the Facility Administration Agreement, the Loan Purchase
and Contribution Agreement, the Disposition Agreement, the Custodial Agreement
and the Company Administration Agreement, may be modified, supplemented or
amended without the prior written consent of the Note Purchaser, which consent
may be granted or withheld in the sole discretion of the Note Purchaser.

            Section 11.2 Governing Law.

            This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the conflicts
of law principles thereof. With respect to all legal proceedings arising out of
or relating to this Agreement or any other Basic Document or the transactions
contemplated hereby or thereby, each party hereto irrevocably submits to the
non-exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan, City of New York, and
each party hereto irrevocably waives any objection that it may have at any time
to the laying of venue of any suit, action or proceeding arising out of or
relating hereto or to any other Basic Document, or the transactions contemplated
hereby or thereby, brought in any such court, irrevocably waives any claim that
any such suit, action or proceeding brought in any such court has been brought
in any inconvenient forum and further irrevocably waives the right to object,
with respect to such claim, suit, action or proceeding brought in any such
court, that such court does not have jurisdiction over such party, provided that
service of process is made by any lawful means. Nothing in this Section 11.2
shall affect the right of the Note Purchaser or its assignees to bring any other
action or proceeding against the Company or OOMC, or the property of either of
them, in the courts of other jurisdictions.

            Section 11.3 Notices.

            All demands, notices and communications to a party hereunder or in
connection herewith shall be in writing and shall be deemed to have been duly
given if personally delivered, or sent by overnight courier, transmitted by
facsimile or mailed by registered or certified mail, return receipt requested,
to, such party at the relevant address or facsimile number set forth below (or
at such other address or facsimile number as such

                                       53

<PAGE>

party may designate from time to time by written notice in accordance with this
Section 11.3):

            If to the Company:

                     Option One Owner Trust 2002-3
                     c/o Wilmington Trust Company as Owner Trustee
                     One Rodney Square North
                     1100 North Market Street
                     Wilmington, DE 19890
                     Attention: Corporate Trust Administration
                     Telephone: (302) 636-4144
                     Facsimile: (302) 651-8882

            with a copy to:

                     OOMC at its address set forth herein

            If to OOMC:

                     Option One Mortgage Corporation
                     3 Ada
                     Irvine, CA 92618
                     Attention: Chief Financial Officer
                     Telephone: (949) 790-7504
                     Facsimile: (949) 790-7540
                     E-mail: bill.oneill@oomc.com

            with a copy to:

                     Option One Loan Warehouse Corporation
                     3 Ada
                     Irvine, CA 92618
                     Attention: Assistant Treasurer
                     Telephone: (949) 790-3600 ext. 32527
                     Facsimile: (949) 790-7514
                     E-mail: Jason.Forsyth@oomc.com

            If to the Note Purchaser:

                     UBS Real Estate Securities Inc.
                     1285 Avenue of the Americas
                     New York, New York  10019

                                       54

<PAGE>

                     Attention: Robert Carpenter
                                George A. Mangiaracina
                     Telephone: (212) 713-2000
                     Facsimile: (212) 713-9607

Any such notice, demand or other communication shall be deemed to have been duly
given when received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt) if received or delivered prior to 1:30 p.m.
local time and, if received or delivered after such time, shall be deemed to
have been received on the next Business Day.

            Section 11.4 Severability of Provisions.

            If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall, for any reason whatsoever, be held invalid under any
applicable law, then such covenants, agreements, provisions, or terms shall be
ineffective to the extent of such invalidity and shall in no way affect the
validity or enforceability of the remainder of that provision or the other
provisions of this Agreement.

            Section 11.5 No Waiver; Cumulative Remedies.

            No failure to exercise and no delay in exercising, on the part of
the Company, the Note Purchaser or any assignee of the Note Purchaser, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. Except as expressly
provided otherwise in this Agreement, the rights, remedies, powers and
privileges herein provided are cumulative and shall be in addition to any
rights, remedies, powers and privilege provided by applicable law or otherwise,
and the assertion or employment of any right, remedy, power or privilege
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right, remedy, power or privilege. In
addition to the rights, remedies, powers and privileges granted to the Note
Purchaser under this Agreement or any Secured Note, the Note Purchaser shall
have all of the rights, remedies, powers and privileges of a secured party under
the UCC (except as expressly provided otherwise in this Agreement).

            Section 11.6 Termination.

            If (a) all Obligations shall have been paid in full (including
payment of the Minimum Usage Fee set forth in the Pricing Side Letter) and (b)
the parties hereto acknowledge in writing their mutual intent to terminate the
Commitment Term and this Agreement, then the Commitment Term and this Agreement
shall terminate and the Note Purchaser shall release its Lien with respect to
the Collateral and return any remaining Collateral to the Company. Upon the
request of the Company, the Note Purchaser shall then execute termination
statements and any other documents the Company reasonably requests that are
necessary to make clear upon the public record the termination of the Note
Purchaser's Liens. Notwithstanding the foregoing or any other provision hereof,
the

                                       55

<PAGE>

obligations of the Company under Sections 8.1, 8.2 and 8.3 shall survive the
termination or other cancellation of this Agreement.

            Section 11.7 Assignment.

            Neither this Agreement nor any rights or other obligations under
this Agreement may be assigned or delegated by the Company without prior written
consent of the Note Purchaser, and any attempted such assignment or delegation
shall be void. The Note Purchaser may assign any and all of its rights
hereunder, without the consent of the Company, in connection with any assignment
by the Note Purchaser of an interest in any Secured Note. If, in accordance with
the preceding sentence, the Note Purchaser assigns any or all of its rights
hereunder to a third party (other than an Affiliate of the Note Purchaser), the
Note Purchaser shall provide written notice thereof to the Company.

            Section 11.8 Binding Effect; Third-Party Beneficiaries.

            This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Each of
the Noteholders other than the Note Purchaser shall be deemed to be an express
third-party beneficiary of this Agreement and shall be entitled to enforce the
terms hereof as if it were a party hereto.

            Section 11.9 Merger and Integration.

            This Agreement and the other Basic Documents set forth the entire
understanding of the parties relating to the subject matter hereof, and all
prior understandings, written or oral, are superseded by this Agreement and the
other Basic Documents.

            Section 11.10 No Petition.

            Neither the Company nor the Note Purchaser shall petition or
otherwise invoke the process of any court or government authority for the
purpose of commencing or sustaining a case against the Company or the Note
Purchaser 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 Company or the Note Purchaser or any substantial
part of their respective property, or ordering the winding up or liquidation of
the affairs of the Company or the Note Purchaser.

            Section 11.11 Cooperation

            The Company agrees to cooperate and to cause its Affiliates
(including the Servicer) to cooperate with the Note Purchaser, consistent with
the terms hereof, to the extent necessary or appropriate to effectuate any sale
or financing of any of the Secured Notes by the Note Purchaser, including by
making available or providing access (as appropriate) to the Note Purchaser or
its designee the Custodial Loan Files and Servicing Records relating to the
Pledged Loans (subject to the confidentiality requirements of any applicable
consumer protection and other laws or regulations).

                                       56

<PAGE>

            Section 11.12 Resales of Secured Notes

            The Note Purchaser understands that the Secured Note has not been,
and will not be, registered under the Securities Act or any state securities
laws, and may not be sold except as permitted in the following sentence. The
Note Purchaser agrees that if it should sell any Secured Note it will do so only
(a) to the Company or an Affiliate of the Company or (b) to a Qualified
Institutional Buyer that, prior to such sale, delivers to the Facility
Administrator and the Company a signed letter, substantially in the form of
Exhibit C to the Facility Administration Agreement, and only if, after giving
effect thereto, no more than 100 Persons would hold any interest in the Secured
Notes; and the Note Purchaser further agrees to provide to any Person purchasing
a Secured Note from it a notice advising such purchaser that resales of the
Secured Notes are restricted as stated herein.

            Section 11.13 Qualified Institutional Buyer.

            The Note Purchaser hereby represents and warrants that it is a
Qualified Institutional Buyer that has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment in the Secured Notes, and that the Note Purchaser is
able to bear the economic risk of such investment.

            Section 11.14 Time.

            Unless the context clearly requires otherwise, all references to
time contained in this Agreement shall be deemed to be local time in New York,
New York on the applicable day.

            Section 11.15 Headings

            The headings and captions contained herein are for convenience only
and shall not control or affect the meaning or interpretation of any provision
hereof.

            Section 11.16 Exhibits

            The schedules and exhibits referred to herein shall constitute a
part of this Agreement and are incorporated into this Agreement for all
purposes.

            Section 11.17 Counterparts

            This Agreement may be executed in two or more counterparts,
including telecopy transmission thereof (and by different parties on separate
counterparts), each of which shall be an original, but all of which together
shall constitute one and the same instrument. Signatures may be exchanged by
facsimile, and each party hereto agrees to be bound by its own facsimile
signature and to accept the facsimile signature of the other party.

                                       57

<PAGE>

            Section 11.18 No Recourse to Owner Trustee

            It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2002-3, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Company is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Company, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Company or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Company under this Agreement or any other related
documents.

                                       58

<PAGE>

            IN WITNESS WHEREOF, the Company, the Note Purchaser and OOMC each
have caused this Agreement to be duly executed by their respective officers as
of the day and year first above written.

                                            OPTION ONE OWNER TRUST 2002-3
                                              as the Company

                                            By: WILMINGTON TRUST COMPANY,
                                                not in its individual capacity
                                                but solely as Owner Trustee

                                            By: /s/ Dorri Wolhar
                                                --------------------------------
                                               Name: Dorri E. Wolhar
                                               Title: Financial Services Officer

                                            UBS REAL ESTATE SECURITIES INC.
                                              as the Note Purchaser

                                            By: /s/ Robert Carpenter
                                                --------------------------------
                                                Name: Robert Carpenter
                                                Title: Executive Director

                                            By: /s/ George A. Mangiaracina
                                                --------------------------------
                                                Name: George A. Mangiaracina
                                                Title: Managing Director

                                            OPTION ONE MORTGAGE CORPORATION
                                              as the Loan Originator

                                            By: /s/ C. R. Fulton
                                                --------------------------------
                                                Name: Charles R. Fulton
                                                Title: Vice President

<PAGE>

                                                                      SCHEDULE I

                               COLLATERAL SCHEDULE

                         [Please see Tab 1 (Schedule A)]

<PAGE>

                                                                       EXHIBIT A

                                   [RESERVED]
<PAGE>

                                                                       EXHIBIT B

                         REPRESENTATIONS AND WARRANTIES
                               REGARDING THE LOANS

            OOMC and the Company hereby jointly and severally represent and
warrants to the Note Purchaser that, as to each Loan, as of the related Advance
Date financing the Company's acquisition of such Loan:

            (a) The information set forth on the Collateral Schedule with
respect to such Loan is true and correct in all material respects.

            (b) Except as otherwise indicated on the Collateral Schedule, all
monthly payments due on such Loan prior to such Advance Date have been made.
Neither the Loan Originator, any Immediate Transferor nor the Company has
advanced funds, or induced, solicited or knowingly received any advance of funds
from a Person other than the Mortgagor thereunder, directly or indirectly, for
the payment of any amount required to be paid in respect of such Loan. As of
such Advance Date, no payment due under such Loan is delinquent for 30 or more
days. No payment under such Loan has been 30 days delinquent more than once
during the twelve months immediately preceding such Advance Date, and no payment
under such Loan has ever been 60 or more days delinquent.

            (c) At the origination of such Loan, all outstanding taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents previously due and owing with
respect to the related Mortgaged Property had been paid, or an escrow of funds
had been established in an amount sufficient to pay for every such item that
remained unpaid and that had been assessed but was not yet due and payable. As
of such Advance Date, all taxes, governmental assessments, insurance premiums,
water, sewer and municipal charges, leasehold payments or ground rents that
previously became due and owing with respect to such Mortgaged Property have
been paid, or an escrow of funds had been established in an amount sufficient to
pay for every such item that remained unpaid and that had been assessed but was
not yet due and payable.

            (d) The related Mortgage and Promissory Note, and any other Loan
Document ("Other Loan Document") contain the entire agreement of the parties and
all obligations of the Loan Originator or the Company under the related Loan. No
terms of the related Promissory Note, Mortgage or Other Loan Document, if any,
have been impaired, waived, altered or modified in any respect, except by
written instruments, recorded in the applicable public recording office if
necessary to maintain the lien priority of the Mortgage, that have been
delivered to the Custodian. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the related policy, and has been disclosed to the Note Purchaser in writing. No
Mortgagor has been released, in whole or in part, except in connection with an
assumption or partial release agreement approved by the title insurer, to the
extent
<PAGE>

required by the policy, and which assumption agreement has been delivered to the
Custodian and the terms of which have been disclosed to the Note Purchaser in
writing.

            (e) None of the related Promissory Note, Mortgage or any Other Loan
Document is subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, nor will the operation of any of the
terms of such Promissory Note, Mortgage or Other Loan Document, or the exercise
of any right thereunder, render such Mortgage unenforceable, in whole or in
part, or subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto.

            (f) All improvements on the related Mortgaged Property are insured
by a generally acceptable insurer against loss by fire and hazards of extended
coverage, pursuant to insurance policies conforming to the requirements of the
Sale and Servicing Agreement, including that the coverage thereunder be for not
less than the lesser of (a) the outstanding principal balance of such Loan and
(b) the lesser of the maximum insurable value of such Mortgaged Property and the
minimum amount required to compensate for damage or loss to such improvements.
All such insurance policies contain a standard mortgagee clause naming the Loan
Originator, its successors and assigns as mortgagee and all premiums thereon
have been paid. If the Mortgaged Property securing such Loan is in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance Administration is
in effect with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (i) the
original outstanding principal balance of such Loan, (ii) the minimum amount
required to compensate for damage or loss on a replacement cost basis or (iii)
the maximum amount of insurance that is available with respect to such Mortgaged
Property under the Flood Disaster Protection Act of 1973. The related Mortgage
obligates the Mortgagor thereunder to maintain all such insurance at the
Mortgagor's cost and expense, and on the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to maintain such insurance at the
Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor. Such Loan does not provide for primary mortgage insurance.

            (g) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the origination and servicing of such Loan have been complied
with, and consummation of the transactions contemplated hereby with respect to
such Loan will not involve the violation of any such laws.

            (h) The related Mortgage has not been satisfied, canceled,
subordinated or rescinded, in whole or in part, and the related Mortgaged
Property has not been released from the lien of such Mortgage, in whole or in
part, nor has any instrument been executed that would effect any such
satisfaction, cancellation, subordination, rescission or release. The related
Promissory Note is not and has not been

                                      B-2
<PAGE>

secured by any Lien except for the Lien of such Mortgage on the Mortgaged
Property and the Lien of any Other Loan Document.

            (i) The Mortgage securing such Loan is a valid, existing and
enforceable first or second Lien (as indicated on the Collateral Schedule with
respect thereto) on and in the Mortgaged Property, including all improvements
thereon, subject only to (i) the lien of current real property taxes and
assessments not yet due, (ii) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date of recording of
such Mortgage, all such exceptions appearing of record being acceptable to
mortgage lending institutions generally and specifically referred to in the
lender's policy of title insurance delivered to the originator of such Loan, and
specifically reflected in the appraisal made in connection with the origination
of such Loan, (iii) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security intended to
be provided by such Mortgage, and (iv) if such Loan is a second-lien loan, the
prior lien of another lender. Any Other Loan Document establishes and creates a
valid, existing and enforceable first or second lien and first or second
priority security interest on the property described therein, and the Company
has full right to Grant a Lien on and in such Other Loan Document to the Note
Purchaser. The Lien of Other Loan Documents affects only property incidental to
the related Mortgaged Property, and there is no pledged account or other
material security securing the related Mortgagor's obligations other than the
Mortgaged Property. The related Mortgaged Property was not, as of the date of
origination of such Loan, subject to a mortgage, deed of trust, deed to secure
debt or other security instrument creating a lien subordinate to the lien of the
related Mortgage.

            (j) The Promissory Note, the related Mortgage and each Other Loan
Document are genuine, and each is the legal, valid and binding obligation of the
maker thereof, enforceable in accordance with its terms.

            (k) All parties to the related Promissory Note, Mortgage or any
Other Loan Document had legal capacity to enter into the Loan and to execute and
deliver such Promissory Note, Mortgage or Other Loan Document, as applicable,
and each of such Promissory Note, Mortgage and Other Loan Document has been duly
and properly executed by such parties.

            (l) The proceeds of such Loan have been fully disbursed to or for
the account of the related Mortgagor and there is no obligation on the part of
the mortgagee thereunder to advance additional funds thereunder. Any and all
requirements as to completion of any on-site or off-site improvement and as to
disbursements of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making or closing such Loan and the recording or
filing of the Mortgage and any Other Loan Document have been paid, and such
Mortgagor is not entitled to any refund of any amounts paid or due to the
mortgagee pursuant to such Promissory Note, Mortgage or Other Loan Document. Any
principal advances made to such Mortgagor prior to the Advance Date have been
consolidated with the outstanding principal amount secured by such Mortgage and
Other Loan Documents, and the secured principal amount, as consolidated, bears a
single interest rate and single repayment term. The Lien of such

                                      B-3
<PAGE>

Mortgage securing the consolidated principal amount is expressly insured as
having first or second lien priority, as applicable, by a title insurance
policy, an endorsement to the policy insuring the mortgagee's consolidated
interest or by other title evidence acceptable to Fannie Mae and Freddie Mac.
The consolidated principal amount does not exceed the original principal amount
of such Loan.

            (m) The related Mortgage was recorded, and all subsequent
assignments of such Mortgage have been recorded in the appropriate jurisdictions
wherein such recordation is necessary to perfect the Lien thereof as against
creditors of OOMC, any Immediate Transferor or the Company. The Company has good
title to, and is the sole legal and beneficial owner of, such Loan free and
clear of any Lien and has full right and authority, subject to no interest or
participation of, or agreement with, any other Person to sell and assign the
same

            (n) All Persons that have had any interest in such Loan, whether as
mortgagee, assignee, pledgee or otherwise, are (or, during the period in which
they held and disposed of such interest, were) in compliance with any and all
applicable "doing business" and licensing requirements of the laws of the state
in which the related Mortgaged Property is located.

            (o) Such Loan is covered by either (i) an attorney's opinion of
title and abstract of title the form of which is acceptable to Fannie Mae, or
(ii) an ALTA lender's title insurance policy or (iii) a CLTA lender's title
insurance policy or other generally acceptable form of policy of insurance
issued by a title insurer qualified to do business in the jurisdiction in which
the related Mortgaged Property is located, in each case (x) insuring (subject to
the exceptions described in clauses (i), (ii) and (iii) of paragraph (i) above)
the Loan Originator and its successors and assigns (including the Company) as to
the first (or, if applicable, second) lien priority of the related Mortgage in
the original principal amount of such Loan, and (y) bearing, to the extent
applicable, a condominium endorsement, extended coverage endorsement and an
adjustable rate mortgage endorsement insuring against any loss by reason of the
invalidity or unenforceability of the Lien thereof resulting from the provisions
of such Mortgage providing for variations in the monthly payment and mortgage
interest rate in respect thereof. Such lender's title insurance policy further
affirmatively insures ingress and egress to and from such Mortgaged Property,
and against encroachments by or upon such Mortgaged Property or any interest
therein. No claims have been made under such lender's title insurance policy,
and no current or prior holder of the related Mortgage, including the Loan
Originator or the Company, has done, by act or omission, anything that would
impair the coverage of such lender's title insurance policy. The Loan Originator
is the sole insured of such lender's title insurance policy, and such lender's
title insurance policy is in full force and effect as of such Advance Date.
Neither the transfer of such Loan to the Company nor the Pledge of such Loan to
the Note Purchaser will affect the validity or enforceability of such policy.

            (p) Except with respect to the permitted delinquencies on certain
Loans as described in paragraph (b) above and on such Collateral Schedule, there
is no (i) material default, breach, violation or event of acceleration existing
under such Loan, or

                                      B-4
<PAGE>

(ii) event that, with the giving of notice or the lapse of time, or both, would
constitute a material default, breach, violation or event of acceleration with
respect to such Loan, and neither the Loan Originator nor the Company has waived
any such default, breach, violation or event of acceleration.

            (q) There are no mechanics' or similar Liens or claims that have
been filed for work, labor or material (and no rights are outstanding that under
law could give rise to any such Lien) affecting the related Mortgaged Property
that are or may be Liens prior to, or equal or of parity with, the Lien of the
related Mortgage.

            (r) All improvements that were considered in determining the
appraised value of the related Mortgaged Property indicated on such Collateral
Schedule lay wholly within the boundaries and building restriction lines of such
Mortgaged Property, and no improvements on adjoining properties to which value
was assigned encroach upon such Mortgaged Property.

            (s) Such Loan was originated in material accordance with the
Underwriting Standards in effect as of its origination date. Such Loan was (i)
originated (as the term is used for the purposes of the Secondary Mortgage
Market Enhancement Act) by OOMC or by a savings and loan association, a savings
bank, a commercial bank or similar banking institution that is supervised and
examined by a federal or state authority, or by a mortgagee approved as such by
the Secretary of Housing and Urban Development pursuant to Sections 203 and 211
of the National Housing Act, or (ii) acquired by OOMC directly through loan
brokers or correspondents. If such Loan was not originated directly by OOMC,
such Loan was directly or indirectly purchased by OOMC from the originator of
such Loan pursuant to one or more Transfer Agreements in form and substance (1)
generally similar to a form that has been provided to, and approved by, the Note
Purchaser, and (2) sufficient to vest good title in such Loan in OOMC, free of
all Liens or other encumbrances except for those, if any, created by OOMC.

            (t) Principal payments on such Loan commenced no more than two (2)
months after the proceeds of such Loan were disbursed. If such Loan is an
adjustable rate loan, on each interest adjustment date under such Loan, the
mortgage interest rate will be adjusted to equal the index plus the gross
margin, rounded to the nearest (or next highest, as applicable) 0.125%, subject
to the periodic rate cap, the maximum rate and the minimum rate set forth in the
Collateral Schedule. The related Promissory Note is payable on the day of each
month indicated on the Collateral Schedule with respect to such Loan in
self-amortizing monthly installments of principal and interest, with interest
payable in arrears, and requires a monthly payment that is sufficient to fully
amortize the outstanding principal balance of such Loan over its remaining term
and to pay interest at the applicable interest rate. If such Loan is an
adjustable rate loan, the related Promissory Note provides that the monthly
payments will be changed on each adjustment date indicated on such Collateral
Schedule to an amount that will amortize the unpaid principal balance of such
Loan over its remaining term at the mortgage interest rate established on such
adjustment date. If such Loan is a fixed-rate loan and provides for the payment
of a balloon payment, such Loan is fully amortizing over a 30-year period

                                      B-5
<PAGE>

and has a 15-year term to maturity. The related Promissory Note does not permit
negative amortization. If such Loan is an adjustable rate loan, the related
Promissory Note does not permit the related Mortgagor to convert such Loan to a
fixed-rate loan.

            (u) The origination, collection and servicing practices used by OOMC
or the Company with respect to the related Promissory Note, Mortgage and Other
Loan Documents have been in all respects legal, proper and customary in the
subprime mortgage origination and servicing industry. Such Loan has been
serviced by the Company and any predecessor servicer in accordance with the
terms of the Promissory Note. With respect to escrow deposits and escrow
payments, if any, all such payments are in the possession of, or under the
control of, the Company and there exist no deficiencies in connection therewith
for which customary arrangements for repayment thereof have not been made. No
escrow deposits or escrow payments or other charges or payments due the Company
or any predecessor owner of such Loan have been capitalized under the related
Promissory Note or Mortgage.

            (v) The related Mortgaged Property is free of damage and waste such
as would materially and adversely affect the value of such Mortgaged Property as
security for such Loan; and there is no proceeding pending for the total or
partial condemnation of such Mortgaged Property,

            (w) The related Promissory Note and Mortgage contain customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against such Mortgaged Property of the
benefits of the security provided thereby, including, (i) if such Mortgage is
designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial
foreclosure. Since the date of origination of such Loan, such Mortgaged Property
has not been subject to any bankruptcy proceeding or foreclosure proceeding and
the related Mortgagor has not filed for protection under applicable bankruptcy
laws. There is no homestead or other exemption available to such Mortgagor that
would interfere with the right to sell such Mortgaged Property at a trustee's
sale or the right to foreclose such Mortgage. Such Mortgagor has not notified
either the Loan Originator or the Company of any relief requested or allowed to
such Mortgagor under the Soldiers and Sailors Civil Relief Act of 1940.

            (x) The Custodial Loan File with respect to such Loan contains an
appraisal of the related Mortgaged Property made and signed, prior to the
approval of the application for such Loan, by a qualified appraiser (i) who, at
the time of such appraisal, met the minimum qualifications of Fannie Mae or
Freddie Mac and the requirements of the Loan Originator's appraisal policy and
(ii) who satisfied (and which appraisal was conducted in accordance with) all of
the applicable requirements of the Uniform Standards of Professional Appraisal
Practice in effect at the time of such appraisal and procedures. Such appraiser
had no interest, direct or indirect, in such Mortgaged Property or in any loan
made on the security thereof, and such appraiser's compensation was not affected
by the approval or disapproval of such Loan.

            (y) If the related Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and

                                      B-6
<PAGE>

currently so serves and is named in such Mortgage, and no fees or expenses are
or will become payable by the Company to the trustee under such deed of trust,
except in connection with a trustee's sale thereunder after default by the
Mortgagor.

            (z) Such Loan contains no (i) provisions pursuant to which any
monthly payment due thereunder is (A) paid or partially paid with funds
deposited in any separate account established by the Loan Originator, the
Company, the related Mortgagor, or anyone on behalf of such Mortgagor, or (B)
paid by any source other than such Mortgagor, or (ii) any other provision, of
like effect, that may constitute a "buydown" provision. Such Loan is not a
graduated payment mortgage loan, and does not have a shared appreciation or
other contingent interest feature.

            (aa) If such Loan is an adjustable rate loan, the related Mortgagor
has executed a statement to the effect that such Mortgagor has received all
disclosure materials required by applicable law with respect to the making of
adjustable rate mortgage loans, and such statement is and will remain in the
related Custodial Loan File.

            (bb) If such Loan is a refinancing Loan, the related Mortgagor has
received all disclosure and rescission materials required by applicable law with
respect to the making of a refinancing Loan, and evidence of such receipt is and
will remain in the related Custodial Loan File.

            (cc) Such Loan was not made (i) in connection with the construction
or rehabilitation of the related Mortgaged Property (except for construction to
permanent financing), or (ii) to facilitate the trade-in or exchange of the
related Mortgaged Property.

            (dd) The related Promissory Note, Mortgage and all Other Loan
Documents, together with any other documents required to be delivered with
respect to such Loan pursuant to the Custodial Agreement, have been delivered to
the Custodian, all in compliance with the specific requirements of the Custodial
Agreement.

            (ee) The related Mortgaged Property is lawfully occupied under
applicable law; and all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of such Mortgaged Property
(including any required certificates of occupancy), have been made by or
obtained from the appropriate authorities.

            (ff) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Loan has taken place on the part of the
Loan Originator or any of the Loan Originator's employees or other agents, or,
to the best knowledge of OOMC and the Company after due inquiry (including
review of the relevant Loan Documents in accordance with the Underwriting
Standards, it being understood and agreed that this portion of this
representation and warranty shall be deemed to have been breached if the Company
or OOMC knew, or should have known, of such fraud), on the part of any third
person, including, without limitation, the Mortgagor, any appraiser, any builder
or developer, or any other party involved in the origination of such Loan or in
the application of or for any insurance in relation to such Loan.

                                      B-7
<PAGE>

            (gg) If the Residential Dwelling on the related Mortgaged Property
is a condominium unit or a unit in a planned unit development (other than a de
minimis planned unit development), such condominium or planned unit development
project meets Fannie Mae's eligibility requirements.

            (hh) Except as disclosed to the Note Purchaser in writing, the Loan
Originator has made no Loan on the related Mortgaged Property other than such
Loan.

            (ii) Such Loan was not intentionally selected by the Loan Originator
in a manner intended to adversely affect the interest of the Company or the Note
Purchaser. The Loan Originator used no selection procedures that identified such
Loan as being less desirable or valuable than other comparable mortgage loans
originated or acquired by the Loan Originator. Such Loans, collectively with the
other Loans included on such Collateral Schedule, is representative of the Loan
Originator's portfolio of fixed rate or adjustable rate mortgage loans, as the
case may be.

            (jj) The related Mortgaged Property consists of a parcel of real
property of not more than twenty acres, and is improved with a Residential
Dwelling. Without limiting the foregoing, such Mortgaged Property is not a log
home, earthen home, or underground home. Such Mortgaged Property consists of
either a fee simple estate or a long-term residential lease. If such Loan is
secured by a long term residential lease: (i) the terms of such lease (A)
expressly permit (1) the mortgaging of the leasehold estate, the assignment of
the lease without the lessor's consent (or the lessor's consent has been
obtained and such consent is in the Custodial Loan File relating to such Loan)
and (2) the acquisition by the holder of the related Mortgage of the rights of
the lessee upon foreclosure or assignment in lieu of foreclosure, or (B) provide
the such holder with substantially similar protection; (ii) the terms of such
lease do not (A) allow the termination thereof upon the lessee's default without
the holder of such Mortgage being entitled to receive written notice of, and an
opportunity to cure, such default or (B) prohibit such holder from being insured
under the hazard insurance policy relating to such Mortgaged Property; (iii) the
original term of such lease is not less than 15 years; (iv) the term of such
lease does not terminate earlier than five years after the maturity date of such
Loan; and (v) such Mortgaged Property is located in a jurisdiction in which the
use of leasehold estates for residential properties is a widely accepted
practice.

            (kk) The related Mortgage, and, if required by applicable law, the
related Promissory Note, contain a provision for the acceleration of the payment
of the unpaid principal balance of such Loan if such Mortgaged Property is sold
or transferred without the prior written consent of the mortgagee under such
Mortgage, at the option of the mortgagee.

            (ll) The prepayment penalty, if any, provided for under the terms of
such Loan is enforceable in accordance with the terms set forth for such Loan in
the Collateral Schedule, subject, however, to the effect of applicable
bankruptcy, insolvency, moratorium and similar proceedings, to general equitable
principles and to limitations that may be imposed in connection with foreclosure
on the related Mortgaged Property under applicable state law.

                                      B-8
<PAGE>

            (mm) There is only one originally executed Promissory Note not
stamped as a duplicate with respect to such Loan.

            (nn) The original executed Promissory Note has not been pledged to
anyone other than Option One Trust 2002-3.

            (oo) Each Loan at origination complied in all material respects with
applicable local, state and federal laws, including, without limitation, usury,
equal credit opportunity, real estate settlement procedures, the Truth In
Lending Act of 1968, as amended, and all applicable predatory and abusive
lending laws.

            (pp) None of the Loans are subject to the Home Ownership and Equity
Protection Act of 1994, as amended, or any comparable state law; none of the
Loans are "section 32" loans or "high cost" loans as defined by applicable
predatory and abusive lending laws.

            (qq) None of the Loans originated in the State of New York are "high
cost" as defined in New York Banking Law Section 6-1.

            (rr) No borrower was encouraged or required to select a Loan product
offered by the Loan Originator which is a higher cost product designed for less
creditworthy borrowers, unless at the time of the Loan's origination, such
borrower did not qualify taking into account credit history and debt to income
ratios for a lower cost credit product then offered by the Loan Originator or
any affiliate of the Loan Originator.

            (ss) The methodology used in underwriting the extension of credit
for each Loan employs objective mathematical principles which relate the
borrower's income, assets and liabilities to the proposed payment and such
underwriting methodology does not rely on the extent of the borrower's equity in
the collateral as the principal determining factor in approving such credit
extension. Such underwriting methodology confirmed that at the time of
origination (application/approval) the borrower had a reasonable ability to make
timely payments on the Loan.

            (tt) With respect to any Loan that contains a provision permitting
imposition of a premium upon a prepayment prior to maturity: (i) prior to the
loan's origination, the borrower agreed to such premium in exchange for a
monetary benefit, including but not limited to a rate or fee reduction, (ii)
prior to the loan's origination, the borrower was offered the option of
obtaining a mortgage loan that did not require payment of such a premium, (iii)
the prepayment premium is disclosed to the borrower in the loan documents
pursuant to applicable state and federal law, and (iv) notwithstanding any state
or federal law to the contrary, the Servicer shall not impose such prepayment
premium in any instance when the mortgage debt is accelerated as the result of
the borrower's default in making the loan payments.

            (uu) No borrower was required to purchase any credit life,
disability, accident or health insurance product as a condition of obtaining the
extension of credit. No borrower obtained a prepaid single premium credit life,
disability, accident or health insurance policy in connection with the
origination of the Loan. No proceeds

                                      B-9
<PAGE>

from any Loan were used to purchase single premium credit insurance policies as
part of the origination of, or as a condition to closing, such Loan.

            (vv) All points and fees related to each Loan were disclosed in
writing to the borrower in accordance with applicable state and federal law and
regulation.

            (ww) All fees and charges (including finance charges) and whether or
not financed, assessed, collected or to be collected in connection with the
origination and servicing of each Loan has been disclosed in writing to the
borrower in accordance with applicable state and federal law and regulation.

            (xx) The Servicer will transmit full-file credit reporting data for
each Loan pursuant to Fannie Mae Guide Announcement 95-19 and that for each
Loan, Servicer agrees it shall report one of the following statuses each month
as follows: new origination, current, delinquent (30-, 60-, 90-days, etc.),
foreclosed, or charged-off.

            (yy) All Prepayment charges are enforceable and were originated in
compliance with all applicable federal, state and local laws.

                                      B-10
<PAGE>

                                                                       EXHIBIT C

                           FORM OF NOTICE OF BORROWING

                                                               ___________, 200_

UBS Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert Carpenter
           George A. Mangiaracina

            Re:  Notice of Borrowing

Ladies and Gentlemen:

            In accordance with Section 2.4 of the Amended and Restated Note
Purchase Agreement dated as of March 18, 2005 (the "Agreement") among Option One
Owner Trust 2002-3 (the "Company"), UBS Real Estate Securities Inc. (the "Note
Purchaser"), and Option One Mortgage Corporation, the Company hereby gives
notice to the Note Purchaser that the Company desires to obtain an Advance
pursuant to the provisions of the Agreement on [specify proposed Advance Date].
All capitalized terms used herein without definition shall have the meanings
assigned to them in the Agreement.

            In connection with this Notice of Borrowing and the proposed
Advance:

            1. The Company represents and warrants to the Note Purchaser that,
on the proposed Advance Date, all conditions precedent specified in Sections 6.1
and 6.2 of the Agreement will have been satisfied.

            2. Pursuant to Section 2.4 of the Agreement, the Company has
attached hereto the Collateral Schedule listing the Loans (for Wet Funded Loans,
in addition, the related wire instructions) and other Collateral intended to be
financed in whole or in part by the Company with the desired Advance.

            3. The Advance should be wired to the following account: [specify
wiring instructions].

                                         Very truly yours,

                                         OPTION ONE OWNER TRUST 2002-3

<PAGE>

                                         By: [OPTION ONE MORTGAGE CORPORATION,
                                             ITS AUTHORIZED REPRESENTATIVE]]

                                             By:________________________________
                                             Name:______________________________
                                             Title:_____________________________

                                      C-2

<PAGE>

                                                                       EXHIBIT D

                             UNDERWRITING STANDARDS

                                 [SEE ATTACHED]

<PAGE>

                                                                       EXHIBIT E

                              CAPITAL ADEQUACY TEST

*For each field multiply the HRB% by the Balance Sheet Amount for Required
Capital

<TABLE>
<CAPTION>
                                                HRB TEST     BALANCE SHEET      REQUIRED CAPITAL
                                                --------     -------------      ----------------
<S>                                             <C>          <C>                <C>
Unrestricted Cash and Equivalents                  0%
Restricted Cash                                    0%
Loans Held for Sale                                9%
Servicing Advances                                10%
Beneficial Interests in trusts                    10%
Subprime Mortgage NIM Residual Interest           60%
Real Estate Held for Sale                         10%
Furniture and Equipment                            0%
Mortgage Servicing Rights                         25%
Prepaid Expenses and Other Assets                 10%
Accrued interest receivable                       10%
Receivable from H&R Block                          0%
Intangibles and goodwill                         100%
Deferred Tax Assets                               10%
Derivative Assets                                 10%
              TOTAL REQUIRED CAPITAL
</TABLE>

Total Owners Equity on Balance Sheet Date

Less: Receivables from H&R Block

______________________________
Adjusted Net Worth

Adjusted Net Worth divided by Required Capital = Ratio for Capital Adequacy Test
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>7
<FILENAME>c91685exv10w47.txt
<DESCRIPTION>AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.47

                AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
                           Dated As of March 18, 2005

                                      among

                          OPTION ONE OWNER TRUST 2002-3
                                    (Company)

                      OPTION ONE LOAN WAREHOUSE CORPORATION

                                   (Depositor)

                         OPTION ONE MORTGAGE CORPORATION
                         (Loan Originator and Servicer)

                                       and

                             WELLS FARGO BANK, N.A.
                            (Facility Administrator)

                          OPTION ONE OWNER TRUST 2002-3
                              MORTGAGE-BACKED NOTES

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      Page
<S>                                                                                                   <C>
                                           ARTICLE I

                                          DEFINITIONS

Section 1.01.    Definitions....................................................................        1
Section 1.02.    Other Definitional Provisions..................................................       21

                                           ARTICLE II

                            CONVEYANCE OF THE LOANS; ADVANCE AMOUNTS

Section 2.01.    Conveyance of the Loans........................................................       22
Section 2.02.    Ownership and Possession of Loan Files.........................................       23
Section 2.03.    Books and Records; Intention of the Parties....................................       24
Section 2.04.    Delivery of Loan Documents.....................................................       25
Section 2.05.    Acceptance by the Facility Administrator of the Loans; Certain Substitutions
                   and Repurchases; Certification by the Custodian..............................       26
Section 2.06.    Conditions Precedent to Transfer Dates.........................................       27
Section 2.07.    Termination of Funding Period..................................................       29
Section 2.08.    Correction of Errors...........................................................       29

                                          ARTICLE III

                                 REPRESENTATIONS AND WARRANTIES

Section 3.01.    Representations and Warranties of the Depositor................................       29
Section 3.02.    Representations and Warranties of the Loan Originator..........................       31
Section 3.03.    Representations, Warranties and Covenants of the Servicer......................       34
Section 3.04.    Reserved.......................................................................       37
Section 3.05.    Representations and Warranties Regarding Loans.................................       37
Section 3.06.    Purchase and Substitution......................................................       37
Section 3.07.    Dispositions...................................................................       39
Section 3.08.    Servicer Call..................................................................       42
Section 3.09.    Modification of Underwriting Standards.........................................       42

                                           ARTICLE IV

                           ADMINISTRATION AND SERVICING OF THE LOANS

Section 4.01.    Servicer's Servicing Obligations...............................................       42
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                    <C>
                                           ARTICLE V

                                 DEPOSITS TO COLLECTION ACCOUNT

Section 5.02.    Investment of Funds............................................................       43

                                           ARTICLE VI

                                           VALUATIONS

Section 6.01.    Valuation of Loans and Retained Securities Value; Market Value Agent...........       43

                                          ARTICLE VII

                                          THE SERVICER

Section 7.01.    Indemnification; Third Party Claims............................................       44
Section 7.02.    Merger or Consolidation of the Servicer........................................       46
Section 7.03.    Limitation on Liability of the Servicer and Others.............................       47
Section 7.04.    Servicer Not to Resign; Assignment.............................................       47
Section 7.05.    Relationship of Servicer to Company, the Note Purchaser and the Facility
                   Administrator................................................................       47
Section 7.06.    Servicer May own Securities....................................................       48
Section 7.07.    Indemnification of the Facility Administrator and Note Purchaser...............       48

                                          ARTICLE VIII

                                   SERVICER EVENTS OF DEFAULT

Section 8.01.    Servicer Events of Default.....................................................       48
Section 8.02.    Appointment of Successor.......................................................       50
Section 8.03.    Waiver of Defaults.............................................................       52
Section 8.04.    Accounting Upon Termination of Servicer........................................       52

                                           ARTICLE IX

                                          TERMINATION

Section 9.01.    Termination....................................................................       52
Section 9.02.    Notice of Termination..........................................................       53

                                           ARTICLE X

                                    MISCELLANEOUS PROVISIONS

Section 10.01.   Amendment......................................................................       53
Section 10.02.   Recordation of Agreement.......................................................       54
Section 10.03.   Duration of Agreement..........................................................       54
Section 10.04.   Governing Law..................................................................       54
</TABLE>

                                                    Sale and Servicing Agreement

                                       ii
<PAGE>

<TABLE>
<S>                                                                                                    <C>
Section 10.05.   Notices........................................................................       55
Section 10.06.   Severability of Provisions.....................................................       56
Section 10.07.   No Partnership.................................................................       57
Section 10.08.   Counterparts...................................................................       57
Section 10.09.   Successors and Assigns.........................................................       57
Section 10.10.   Headings.......................................................................       57
Section 10.11.   Actions of Securityholders.....................................................       57
Section 10.12.   Non-Petition Agreement.........................................................       58
Section 10.13.   Holders of the Securities......................................................       58
Section 10.14.   Due Diligence Fees, Due Diligence..............................................       58
Section 10.15.   Confidential Information.......................................................       59
Section 10.16.   No Recourse to Owner Trustee...................................................       60
</TABLE>

EXHIBIT A   Form of Notice of Advance Amount

EXHIBIT B   [Reserved]

EXHIBIT C   Form of S&SA Assignment

EXHIBIT D   [Reserved]

EXHIBIT E   Representations and Warranties Regarding the Loans

EXHIBIT F   Servicing Addendum

                                                    Sale and Servicing Agreement

                                      iii
<PAGE>

            This Amended and Restated Sale and Servicing Agreement amends and
restates in its entirety the Sale and Servicing Agreement dated as of July 2,
2002, among OPTION ONE OWNER TRUST 2002-3, a Delaware business trust (the
"Company" or the "Trust"), OPTION ONE LOAN WAREHOUSE CORPORATION, a Delaware
corporation, as Depositor (in such capacity, the "Depositor"), OPTION ONE
MORTGAGE CORPORATION, a California corporation ("Option One"), as Loan
Originator (in such capacity, the "Loan Originator") and as Servicer (in such
capacity, the "Servicer") and WELLS FARGO BANK, N.A., a national banking
association, as Facility Administrator on behalf of the Noteholders (in such
capacity, the "Facility Administrator").

                                   WITNESSETH:

            In consideration of the mutual agreements herein contained, the
Company, the Depositor, the Loan Originator, the Servicer and the Facility
Administrator hereby agree as follows for the benefit of each of them and for
the benefit of the holders of the Securities:

                                   ARTICLE I

                                  DEFINITIONS

            Section 1.01 Definitions.

            Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

            Accepted Servicing Practices: The Servicer's normal servicing
practices in servicing and administering mortgage loans for its own account,
which in general shall conform to the mortgage servicing practices of prudent
mortgage lending institutions which service for their own account mortgage loans
of the same type as the Loans in the jurisdictions in which the related
Mortgaged Properties are located and which shall (i) give due consideration to
the Noteholders' reliance on the Servicer, and (ii) comply in all material
respects with all applicable laws, rules, regulations and orders.

            Accrual Period: With respect to the Secured Notes, the period
commencing on and including the preceding Payment Date (or, in the case of the
first Payment Date, the period commencing on and including the first Transfer
Date (which first Transfer Date is the first date on which the Secured Note
Principal Balance is greater than zero)) and ending on the day preceding the
related Payment Date.

            Act or Securities Act: The Securities Act of 1933, as amended.

            Adjustment Date: With respect to each ARM, the date set forth in the
related Promissory Note on which the Loan Interest Rate on such ARM is adjusted
in accordance with the terms of the related Promissory Note.

<PAGE>

            Administration Agreement: The Administration Agreement, dated as of
July 2, 2002, between the Company and Option One, as Administrator and as
Servicer.

            Administrator: Option One, in its capacity as Administrator under
the Administration Agreement.

            Advance Amount: With respect to each Transfer Date, the "Advance
Amount" determined pursuant to the Note Purchase Agreement.

            Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

            Agreement: This Agreement, as the same may be amended and
supplemented from time to time.

            ALTA: The American Land Title Association and its successors in
interest.

            "Appraised Value": With respect to any Mortgage Loan, and the
      related Mortgaged Property, the lesser of:

            (i) the lesser of (a) the value thereof as determined by an
      appraisal made for the originator of the Mortgage Loan at the time of
      origination of the Mortgage Loan by an appraiser who met the minimum
      requirements of Fannie Mae and Freddie Mac, and (b) the value thereof as
      determined by a review appraisal conducted by the Originator in the event
      any such review appraisal determines an appraised value more than 10%
      lower than the value thereof, in the case of a Mortgaged Loan with a
      Loan-to-Value Ratio less than or equal to 80%, or more than 5% lower than
      the value thereof, in the case of a Mortgage Loan with a Loan-to-Value
      Ratio greater than 80%, as determined by the appraisal referred to in
      clause (i)(a) above; and

            (ii) the purchase price paid for the related Mortgaged Property by
      the Mortgagor with the proceeds of the Mortgage Loan; provided, however,
      that in the case of a refinanced Mortgage Loan (which is a Mortgage Loan
      the proceeds of which were not used to purchase the related Mortgaged
      Property) or a Mortgage Loan originated in connection with a "lease option
      purchase" if the "lease option purchase price" was set 12 months or more
      prior to origination, such value of the Mortgage Property is based solely
      upon clause (i) above.

            ARM: Any Loan, the Loan Interest Rate with respect to which is
subject to adjustment during the life of such Loan.

                                        2
<PAGE>

            Assignment: A LPA Assignment or S&SA Assignment.

            Assignment of Mortgage: With respect to any Loan, an assignment of
the related Mortgage in blank or to Wells Fargo Bank, N.A., as custodian or
trustee under the applicable custodial agreement or trust agreement, and notice
of transfer or equivalent instrument in recordable form, sufficient under the
laws of the jurisdiction wherein the related Mortgaged Property is located to
reflect the assignment and pledge of such Mortgage.

            Balloon Loan: Any Loan for which the related monthly payments, other
than the monthly payment due on the maturity date stated in the Promissory Note,
are computed on the basis of a period to full amortization ending on a date that
is later than such maturity date.

            Basic Documents: This Agreement, including any S&SA Assignment, the
Administration Agreement, the Custodial Agreement, the Facility Administration
Agreement, the Loan Purchase and Contribution Agreement, any other "Transfer
Agreement" (as defined in the Note Purchase Agreement), the Note Purchase
Agreement, the Disposition Agreement, the Trust Agreement, and, as and when
required to be executed and delivered, the Assignments.

            Borrower: The obligor or obligors on a Promissory Note.

            Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in New York City, California, Delaware,
Minnesota, Maryland, Pennsylvania or in the city in which the corporate trust
office of the Facility Administrator is located or the city in which the
Servicer's servicing operations are located are authorized or obligated by law
or executive order to be closed.

            Certificateholder: A holder of a Trust Certificate.

            Closing Date: July 8, 2002.

            Code: The Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated by the United States Treasury thereunder.

            Collateral: As defined in the Note Purchase Agreement.

            Collateral Value: As defined in the Note Purchase Agreement.

            Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.1 of the Facility
Administration Agreement.

            Combined LTV or CLTV: With respect to any Second Lien Loan, the
ratio of (a) the sum of the outstanding principal balances, on date of
origination of such Second Lien Loan, of (i) such Loan and (ii) the loan
constituting the first lien on the

                                        3
<PAGE>

affected Mortgaged Property to (b) the Appraised Value of the Mortgaged Property
at origination, expressed as a percentage.

            Commission: The Securities and Exchange Commission.

            Commitment Term: That period of time commencing on March 19, 2005
and continuing until the earlier of (i) September 8, 2005 (or, if applicable,
such later date as may be in effect from time to time pursuant to Section
2.10(d) in the Note Purchase Agreement), and (ii) the date upon which the
Obligations are declared to be, or become, due and payable in full in accordance
with Article X of the Note Purchase Agreement.

            Company Estate: Collectively, all property constituting the
Collateral.

            Convertible Loan: A Loan that by its terms and subject to certain
conditions contained in the related Mortgage or Promissory Note allows the
Borrower to convert the adjustable Loan Interest Rate on such Loan to a fixed
Loan Interest Rate.

            Custodial Agreement: The custodial agreement dated as of July 2,
2002, among the Company, the Servicer, the Note Purchaser, the Facility
Administrator and the Custodian, providing for the retention of the Custodial
Loan Files by the Custodian on behalf of the Facility Administrator on behalf of
the Noteholders.

            Custodial Loan File: As defined in Section 2(b) of the Custodial
Agreement.

            Custodian: The custodian named in the Custodial Agreement, which
custodian shall not be affiliated with the Servicer, the Loan Originator, the
Depositor or any Subservicer. Wells Fargo Bank, N.A., a national banking
association, shall be the initial Custodian pursuant to the terms of the
Custodial Agreement.

            Deemed Cured: With respect to any Performance Trigger Event, that
the delinquency and/or loss ratios which resulted in such Performance Trigger
Event have declined to below the specified levels for three consecutive
Determination Dates.

            Default: Any occurrence that, with notice or the lapse of time, or
both would, unless cured or waived, become an Event of Default.

            Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan, with respect to which any of
the following has occurred as of the end of the related Remittance Period: (a)
foreclosure or similar proceedings have been commenced; or (b) the Servicer or
any Subservicer has determined in good faith and in accordance with the
servicing standard set forth in Section 4.01 that such Loan is in default or
imminent default.

            Deleted Loan: A Loan replaced or to be replaced by one or more
Qualified Substitute Loans.

                                        4
<PAGE>

            Delinquency Ratio: The ratio of all Loans that are Delinquent to the
aggregate of all Loans, determined on the basis of aggregate Principal Balance.

            Delinquent: A Loan is "Delinquent" if any Monthly Payment due
thereon is not made by the close of business on the day such Monthly Payment is
required to be paid. A Loan is "30 days Delinquent" if any Monthly Payment due
thereon has not been received by the close of business on the corresponding day
of the month immediately succeeding the month in which such Monthly Payment was
required to be paid or, if there is no such corresponding day (e.g., as when a
30-day month follows a 31-day month in which a payment was required to be paid
on the 31st day of such month), then on the last day of such immediately
succeeding month. The determination of whether a Loan is "60 days Delinquent,"
"90 days Delinquent", etc., shall be made in like manner.

            Delivery: When used with respect to Trust Account Property means:

            (a) with respect to bankers' acceptances, commercial paper,
      negotiable certificates of deposit and other obligations that constitute
      "instruments" within the meaning of Section 9-105(l)(i) of the UCC and are
      susceptible of physical delivery (except with respect to Trust Account
      Property consisting of certificated securities (as defined in Section
      8-102(a)(4) of the UCC)), physical delivery to the Facility Administrator
      or its custodian (or the related Securities Intermediary) endorsed to the
      Facility Administrator or its custodian (or the related Securities
      Intermediary) or endorsed in blank (and if delivered and endorsed to the
      Securities Intermediary, by continuous credit thereof by book-entry to the
      related Trust Account);

            (b) with respect to a certificated security (i) delivery of such
      certificated security endorsed to, or registered in the name of, the
      Facility Administrator or endorsed in blank to its custodian or the
      related Securities Intermediary and the making by such Securities
      Intermediary of appropriate entries in its records identifying such
      certificated securities as credited to the related Trust Account, or (ii)
      by delivery thereof to a "clearing corporation" (as defined in Section
      8-102(5) of the UCC) and the making by such clearing corporation of
      appropriate entries in its records crediting the securities account of the
      related Securities Intermediary by the amount of such certificated
      security and the making by such Securities Intermediary of appropriate
      entries in its records identifying such certificated securities as
      credited to the related Trust Account (all of the Trust Account Property
      described in Subsections (a) and (b), "Physical Property"); and, in any
      event, any such Physical Property in registered form shall be in the name
      of the Facility Administrator or its nominee or custodian (or the related
      Securities Intermediary); and such additional or alternative procedures as
      may hereafter become appropriate to effect the complete transfer of
      ownership of any such Trust Account Property to the Facility Administrator
      or its nominee or custodian, consistent with changes in applicable law or
      regulations or the interpretation thereof;

                                        5
<PAGE>

            (c) with respect to any security issued by the U.S. Treasury, Fannie
      Mae or Freddie Mac that is a book-entry security held through the Federal
      Reserve System pursuant to federal book-entry regulations, the following
      procedures, all in accordance with applicable law, including applicable
      federal regulations and Articles 8 and 9 of the UCC: the making by a
      Federal Reserve Bank of an appropriate entry crediting such Trust Account
      Property to an account of the related Securities Intermediary or the
      securities intermediary that is (x) also a "participant" pursuant to
      applicable federal regulations and (y) is acting as securities
      intermediary on behalf of the Securities Intermediary with respect to such
      Trust Account Property; the making by such Securities Intermediary or
      securities intermediary of appropriate entries in its records crediting
      such book-entry security held through the Federal Reserve System pursuant
      to federal book-entry regulations and Articles 8 and 9 of the UCC to the
      related Trust Account; and such additional or alternative procedures as
      may hereafter become appropriate to effect complete transfer of ownership
      of any such Trust Account Property to the Facility Administrator or its
      nominee or custodian, consistent with changes in applicable law or
      regulations or the interpretation thereof; and

            (d) with respect to any item of Trust Account Property that is an
      uncertificated security (as defined in Section 8-102(a)(18) of the UCC)
      and that is not governed by clause (c) above, registration in the records
      of the issuer thereof in the name of the related Securities Intermediary,
      and the making by such Securities Intermediary of appropriate entries in
      its records crediting such uncertificated security to the related Trust
      Account.

            Designated Depository Institution: With respect to an Eligible
Account, an institution whose deposits are insured by the Bank Insurance Fund or
the Savings Association Insurance Fund of the FDIC, the long-term deposits of
which shall be rated A or better by S&P or A2 or better by Moody's and the
short-term deposits of which shall be rated P-1 or better by Moody's and A-1 or
better by S&P, unless otherwise approved in writing by the Note Purchaser and
which is any of the following: (A) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(B) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (C) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (D) a principal subsidiary of a bank holding company or (E) approved in
writing by the Note Purchaser and, in each case acting or designated by the
Servicer as the depository institution for the Eligible Account; provided,
however, that any such institution or association shall have combined capital,
surplus and undivided profits of at least $50,000,000.

            Depositor: Option One Loan Warehouse Corporation, a Delaware
corporation, and any successors thereto.

            Determination Date: With respect to any Payment Date occurring on
the 10th day of a month, the last day of the calendar month immediately
preceding such

                                        6
<PAGE>

Payment Date, and with respect to any other Payment Date, as mutually agreed by
the Servicer and the Noteholders.

            Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans.

            Disposition Agent: UBS Real Estate Securities Inc. and its
successors and assigns acting at the direction of the Majority Noteholders.

            Disposition Agreement: As defined in the Note Purchase Agreement.

            Disposition Participant: As applicable, with respect to a
Disposition, any "depositor" with respect to such Disposition, the Disposition
Agent, the Majority Noteholders, the Trust, the Servicer, the related trustee
and the related custodian, any nationally recognized credit rating agency, the
related underwriters, the related placement agent, the related credit enhancer,
the related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.

            Disposition Proceeds: With respect to a Disposition, (x) the
proceeds of the Disposition remitted to the Trust in respect of the Loans
transferred on the date of and with respect to such Disposition, including
without limitation, any cash and Retained Securities created in any related
Securitization less all costs, fees and expenses incurred in connection with
such Disposition, including, without limitation, all amounts deposited into any
reserve accounts upon the closing thereof, minus (y) all other amounts agreed
upon in writing by the Note Purchaser, the Trust and the Servicer.

            Due Date: The day of the month on which the Monthly Payment is due
from the Borrower with respect to a Loan.

            Eligible Account: At any time, an account which is: (i) maintained
with a Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a
trust account (which shall be a "segregated trust account") maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Facility Administrator and the Company, which
depository institution or trust company shall have capital and surplus of not
less than $50,000,000; or (iv) with the prior written consent of the Majority
Noteholders, any other account.

            Eligible Servicer: Either (x) Option One, for so long as Option One
(i) is an approved seller-servicer by Fannie Mae or Freddie Mac and (ii) has a
GAAP Net Worth of at least $200,000,000, or (y) any other Person to which the
Majority Noteholders may consent in writing.

            Escrow Payments: With respect to any Loan, the amounts constituting
ground rents, taxes, assessments, water rates, sewer rents, municipal charges,
fire, hazard, liability and other insurance premiums, condominium charges, and
any other payments

                                        7
<PAGE>

required to be escrowed by the related Borrower with the lender or servicer
pursuant to the Mortgage or any other document.

            Event of Default: Either a Servicer Event of Default or an Event of
Default under the Note Purchase Agreement.

            Exceptions Report: The meaning set forth in the Custodial Agreement.

            Exchange Act: The Securities Exchange Act of 1934, as amended.

            Facility Administration Agreement: The Facility Administration
Agreement dated as of July 2, 2002, among the Company, the Note Purchaser, the
Servicer and the Facility Administrator (including any applicable amendments,
supplements, exhibits and schedules thereto).

            Facility Administrator: Wells Fargo Bank, N.A., a national banking
association, as Facility Administrator under the Facility Administration
Agreement, or any successor Facility Administrator under the Facility
Administration Agreement.

            Fannie Mae: The Federal National Mortgage Association and any
successor thereto.

            FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.

            Fidelity Bond: As described in Section 4.10 of the Servicing
Addendum.

            Final Recovery Determination: With respect to any defaulted Loan or
any REO Property, a determination made by the Servicer that all Mortgage
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

            First Lien Loan: A Loan secured by the lien on the related Mortgaged
Property, subject to no prior liens on such Mortgaged Property.

            Foreclosed Loan: As of any Determination Date, any Loan that as of
the end of the preceding Remittance Period has been discharged as a result of
(i) the completion of foreclosure or comparable proceedings by the Servicer, on
behalf of the Company; (ii) the acceptance of the deed or other evidence of
title to the related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition of title to the related
Mortgaged Property by operation of law.

            Foreclosure Property: Any real property securing a Foreclosed Loan
that has been acquired by the Servicer on behalf of the Company through
foreclosure, deed in lieu of foreclosure or similar proceedings in respect of
the related Loan.

                                        8
<PAGE>

            Freddie Mac: The Federal Home Loan Mortgage Corporation and any
successor thereto.

            Funding Period: Shall mean the period commencing on the Closing Date
and ending on the earliest to occur of (i) the last day of the Commitment Term
and (ii) the occurrence of an Event of Default or a Default, if the Note
Purchaser so elects, provided that if any Default is cured before it becomes an
Event of Default, the Funding Period shall be reinstated, unless the last day of
the Commitment Term has occurred or an event described in clause (iii) has
occurred and has not been Deemed Cured; and (iii) the occurrence of a
Performance Trigger Event, if the Note Purchaser so elects, provided that, if
such Performance Trigger Event is Deemed Cured, the Funding Period shall be
reinstated, unless the last day of the Commitment Term has expired or an event
described in clause (ii) has occurred and an Event of Default or Default still
exists.

            GAAP: Generally Accepted Accounting Principles as in effect in the
United States.

            GAAP Net Worth: As defined in the Note Purchase Agreement.

            General Operating Account: The account, designated as such,
established and maintained pursuant to Section 5.1 of the Facility
Administration Agreement.

            Gross Margin: With respect to each ARM, the fixed percentage amount
set forth in the related Promissory Note.

            Independent: When used with respect to any specified Person, such
Person (i) is in fact independent of the Loan Originator, the Servicer, the
Depositor or any of their respective Affiliates, (ii) does not have any direct
financial interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates
merely because such Person is the beneficial owner of 1% or less of any class of
securities issued by the Loan Originator, the Depositor, the Servicer or any of
their respective Affiliates, as the case may be.

            Independent Accountants: A firm of nationally recognized certified
public accountants which is independent according to the provisions of SEC
Regulation S-X, Article 2.

            Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.

            Interest Advance: The aggregate of the advances made by the Servicer
on any Remittance Date pursuant to Section 4.14 of the Servicing Addendum.

                                        9
<PAGE>

            Lien: With respect to any asset, (a) any mortgage, lien, pledge,
charge, security interest, hypothecation, option or encumbrance of any kind in
respect of such asset, or (b) the interest of a vendor or lessor under any
conditional sale agreement, financing lease or other title retention agreement
relating to such asset.

            Lifetime Cap: The provision in the Promissory Note for each ARM
which limits the maximum Loan Interest Rate over the life of such ARM.

            Lifetime Floor: The provision in the Promissory Note for each ARM
which limits the minimum Loan Interest Rate over the life of such ARM.

            Liquidated Loan: As defined in Section 4.03(c) of the Servicing
Addendum.

            Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that have become Liquidated Loans, and (ii) all Liquidation Proceeds
allocable to principal received on or prior to such date.

            Liquidation Proceeds: With respect to a Liquidated Loan, any cash
amounts received in connection with the liquidation of such Liquidated Loan,
whether through trustee's sale, foreclosure sale or other disposition, any cash
amounts received in connection with the management of the Mortgaged Property
from Defaulted Loans, any proceeds from Primary Insurance Policies, any amounts
received in respect of any condemnation or other taking of all or any portion of
such Mortgaged Property and any other amounts required to be deposited in the
Collection Account pursuant to Section 5.01(b)(1), in each case other than
Mortgage Insurance Proceeds and Released Mortgaged Property Proceeds.

            Loan: Any loan sold to the Trust hereunder and pledged to the
Facility Administrator, which loan includes, without limitation, (i) a
Promissory Note and related Mortgage, (ii) all right, title and interest of the
Loan Originator in and to the Mortgaged Property covered by such Mortgage and
(iii) all servicing rights with respect to such Loan. The term Loan shall be
deemed to include the related Promissory Note, related Mortgage and related
Foreclosure Property, if any.

            Loan Documents: With respect to a Loan, the documents comprising the
Custodial Loan File for such Loan.

            Loan File: With respect to each Loan, the Custodial Loan File and
the Servicer's Loan File.

            Loan Interest Rate: With respect to each Loan, the annual rate of
interest borne by the related Promissory Note, as shown on the Loan Schedule,
and, in the case of an ARM, as the same may be periodically adjusted in
accordance with the terms of such Loan.

            Loan Originator: Option One and its permitted successors and
assigns.

                                       10
<PAGE>

            Loan Pool: As of any date of determination, the pool of all Loans
conveyed to the Company pursuant to this Agreement on all Transfer Dates up to
and including such date of determination, which Loans have not been released
from the Lien of the Facility Administrator pursuant to the terms of the Basic
Documents, together with the rights and obligations of a holder thereof, and the
payments thereon and proceeds therefrom received on and after the applicable
Transfer Cut-off Date, as identified from time to time on the Loan Schedule.

            Loan Purchase and Contribution Agreement: The Loan Purchase and
Contribution Agreement, between Option One, as seller, and the Depositor, as
purchaser, dated as of July 2, 2002, and all supplements and amendments thereto.

            Loan Schedule or Collateral Schedule: As defined in the Note
Purchase Agreement.

            Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the
ratio of the original outstanding principal amount of such Loan to the lesser of
(a) the Appraised Value of the Mortgaged Property at origination or (b) if the
Mortgaged Property was purchased within 12 months of the origination of the
Loan, the purchase price of the Mortgaged Property.

            LPA Assignment: The Assignment of Loans from Option One to the
Depositor under the Loan Purchase and Contribution Agreement.

            Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

            Majority Noteholders: The holder or holders of in excess of 50% of
the Secured Note Principal Balance. In the event that the Secured Notes have
been paid in full and the Note Purchase Agreement has terminated, the Majority
Noteholders shall mean the Majority Certificateholders.

            Manufactured Dwelling: Shall mean a fully attached manufactured home
which is considered and treated as "real estate" under applicable state law.

            Market Value: For purposes of this facility and related
transactions, the market value of a Loan as of any Business Day as determined by
the Market Value Agent in accordance with Section 6.01.

            Market Value Agent: UBS Real Estate Securities Inc. or an Affiliate
thereof designated by UBS Real Estate Securities Inc. in writing to the parties
hereto and, in either case, its successors in interest.

            Maximum Note Principal Balance: The "Commitment Amount" under the
Note Purchase Agreement.

            Mixed Use Loan: A Loan secured by a Mortgaged Property that is used
primarily for residential purposes, but which is also used for non-residential
purposes.

                                       11
<PAGE>

            Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Borrower on the related Loan, as set forth in
the related Promissory Note.

            Moody's: Moody's Investors Service, Inc., or any successor thereto.

            Mortgage: with respect to any Loan, the mortgage, deed of trust or
other instrument securing the related Promissory Note, which creates a first or
second lien on the fee in real property and/or a first or second lien on the
leasehold estate in real property securing the Promissory Note and the
assignment of rents and leases related thereto.

            Mortgage Insurance Policies: With respect to any Mortgaged Property
or Loan, the insurance policies required pursuant to Section 4.08 of the
Servicing Addendum.

            Mortgage Insurance Proceeds: With respect to any Mortgaged Property,
all amounts collected in respect of Mortgage Insurance Policies and not required
either pursuant to applicable law or the related Loan Documents to be applied to
the restoration of the related Mortgaged Property or paid to the related
Borrower.

            Mortgaged Property: With respect to a Loan, the related Borrower's
fee and/or leasehold interest in the real property (and/or all improvements,
buildings, fixtures, building equipment and personal property thereon (to the
extent applicable) and all additions, alterations and replacements made at any
time with respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by the related Promissory Note.

            Net Liquidation Proceeds: With respect to any Payment Date,
Liquidation Proceeds received during the prior Remittance Period, net of any
reimbursements to the Servicer made from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation and liquidation of the related Liquidated Loans or
Foreclosure Properties pursuant to Section 4.03.

            Net Loan Losses: With respect to any Defaulted Loan that is subject
to a modification pursuant to Section 4.01, an amount equal to the portion of
the Principal Balance, if any, released in connection with such modification.

            Nonrecoverable Interest Advance: Any Interest Advance previously
made or proposed to be made with respect to a Loan or REO Property that, in the
good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Note Purchaser, will not,
or, in the case of a proposed Interest Advance, would not be, ultimately
recoverable from the related late payments, Mortgage Insurance Proceeds,
Released Mortgaged Property Proceeds or Liquidation Proceeds on such Loan or REO
Property as provided herein.

                                       12
<PAGE>

            Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, Liquidation Proceeds, Mortgage Insurance
Proceeds or the Released Mortgaged Property Proceeds on the related Loan or
Foreclosure Property, or (b) a Servicing Advance proposed to be made in respect
of a Loan or Foreclosure Property, either of which, in the good faith business
judgment of the Servicer, as evidenced by an Officer's Certificate of a
Servicing Officer delivered to the Note Purchaser, would not be ultimately
recoverable.

            Noteholder: The meaning assigned thereto in the Facility
Administration Agreement.

            Note Purchase Agreement: The Amended and Restated Note Purchase
Agreement among the Note Purchaser, and the Company, dated as of March 18, 2005.

            Note Purchaser: UBS Real Estate Securities Inc. or an Affiliate
thereof identified in writing by UBS Real Estate Securities Inc. to the parties
hereto.

            Officer's Certificate: A certificate signed by a Responsible Officer
of the Depositor, the Loan Originator, the Servicer or the Company, in each
case, as required by this Agreement.

            Opinion of Counsel: A written opinion of counsel who may be employed
by the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

            Option One: Option One Mortgage Corporation, a California
corporation.

            Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.

            Payment Date: As defined in the Facility Administration Agreement.

            Percentage Interest: As defined in the Trust Agreement.

            Performance Trigger Event: As of any Determination Date, the
existence of one or more of the following conditions as of such Determination
Date:

            (a) the aggregate Principal Balance of all Loans that are 30 to 59
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 5%; provided, however,
that a Performance Trigger Event shall not occur if such percentage is reduced
to less than 5% within three Business Days of such Determination Date as a
result of the exercise of a Servicer Call; and

            (b) the aggregate Principal Balance of all Loans that are 60 to 89
days Delinquent as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 2%; provided, however,
that a Performance

                                       13
<PAGE>

Trigger Event shall not occur if such percentage is reduced to less than 2%
within three Business Days of such Determination Date as a result of the
exercise of a Servicer Call; and a Performance Trigger Event shall continue to
exist until it is Deemed Cured.

            Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note that is
the maximum annual percentage by which the Loan Interest Rate for such Loan may
increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on such
Rate Change Date from the Loan Interest Rate in effect immediately prior to such
Rate Change Date.

            Permitted Investments: Each of the following:

            (a) Direct general obligations of the United States or the
      obligations of any agency or instrumentality of the United States fully
      and unconditionally guaranteed, the timely payment or the guarantee of
      which constitutes a full faith and credit obligation of the United States.

            (b) Federal Housing Administration debentures rated Aa2 or higher by
      Moody's and AA or better by S&P.

            (c) Freddie Mac senior debt obligations rated Aa2 or higher by
      Moody's and AA or better by S&P.

            (d) Federal Home Loan Banks' consolidated senior debt obligations
      rated Aa2 or higher by Moody's and AA or better by S&P.

            (e) Fannie Mae senior debt obligations rated Aa2 or higher by
      Moody's.

            (f) Federal funds, certificates or deposit, time and demand
      deposits, and bankers' acceptances (having original maturities of not more
      than 30 days) of any domestic bank, the short-term debt obligations of
      which have been rated A-1 or better by S&P and P-1 or better by Moody's.

            (g) Investment agreements approved by the Note Purchaser provided:

                        1. The agreement is with a bank or insurance company
                  which has an unsecured, uninsured and unguaranteed obligation
                  (or claims-paying ability) rated Aa2 or better by Moody's and
                  AA or better by S&P, and

                        2. Monies invested thereunder may be withdrawn without
                  any penalty, premium or charge upon not more than one day's
                  notice (provided such notice may be amended or canceled at any
                  time prior to the withdrawal date), and

                        3. The agreement is not subordinated to any other
                  obligations of such insurance company or bank, and

                                       14
<PAGE>

                        4. The same guaranteed interest rate will be paid on any
                  future deposits made pursuant to such agreement, and

                        5. The Facility Administration and the Note Purchaser
                  receive an opinion of counsel that such agreement is an
                  enforceable obligation of such insurance company or bank.

            (h) Commercial paper (having original maturities of not more than
      365 days) rated A-1 or better by S&P and P-1 or better by Moody's.

            (i) Investments in money market funds rated AAAM or AAAM-G by S&P
      and Aaa or P-1 by Moody's.

            (j) Investments approved in writing by the Note Purchaser;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

            Each reference in this definition to the Rating Agency shall be
construed as a reference to each of S&P and Moody's.

            Person: Any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, national
banking association, unincorporated organization or government or any agency or
political subdivision thereof.

            Physical Property: As defined in clause (b) of the definition of
"Delivery" above.

            Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of the end of the preceding
Remittance Period.

            Prepaid Installment: With respect to any Loan, any installment of
principal thereof and interest thereon received prior to the scheduled Due Date
for such installment, intended by the Borrower as an early payment thereof and
not as a Prepayment with respect to such Loan.

            Prepayment: Any payment of principal of a Loan which is received by
the Servicer in advance of the scheduled due date for the payment of such
principal (other

                                       15
<PAGE>

than the principal portion of any Prepaid Installment), and the proceeds of any
Mortgage Insurance Policy which are to be applied as a payment of principal on
the related Loan shall be deemed to be Prepayments for all purposes of this
Agreement.

            Preservation Expenses: Expenditures made by the Servicer in
connection with a Foreclosed Loan prior to the liquidation thereof, including,
without limitation, expenditures for real estate property taxes, hazard
insurance premiums, or property inspection, restoration or preservation.

            Primary Insurance Policy: A policy of primary mortgage guaranty
insurance issued by a Qualified Insurer pursuant to Section 4.06 of the
Servicing Addendum.

            Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other Determination Date, the outstanding
unpaid principal balance of the Loan as of the end of the preceding Remittance
Period (after giving effect to all payments received thereon and the allocation
of any Net Loan Losses with respect thereto for a Defaulted Loan prior to the
end of such Remittance Period); provided, however, that any Liquidated Loan
shall be deemed to have a Principal Balance of zero.

            Proceeding: Any suit in equity, action at law, or other judicial or
administrative or arbitration proceeding.

            Promissory Note: With respect to a Loan, the original executed
promissory note or other evidence of the indebtedness of the related Borrower or
Borrowers.

            Put/Call Loan: Any (i) Loan that has become 90 or more days
Delinquent, (ii) Defaulted Loan, (iii) Loan that has been in default for a
period of 30 days or more (other than a Loan referred to in the preceding clause
(i)), (iv) Loan that does not meet criteria established by independent rating
agencies or surety agency conditions for Dispositions which criteria have been
established at the related Transfer Date and may be modified only to match
changed criteria of independent rating agencies or surety agents, or (v) Loan
that is inconsistent with the intended tax status of a Securitization.

            Qualified Insurer: An insurance company duly qualified as such under
the laws of the states in which the Mortgaged Property is located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided and that meets the requirements of
Fannie Mae and Freddie Mac.

            Qualified Substitute Loan: A Loan or Loans substituted for a Deleted
Loan pursuant to Section 3.06, which (i) has or have been approved in writing by
the Majority Noteholders and (ii) complies or comply as of the date of
substitution with each representation and warranty set forth in Exhibit E and is
or are not 30 or more days Delinquent as of the date of substitution for such
Deleted Loan or Loans.

                                       16
<PAGE>

            Rate Change Date: The date on which the Loan Interest Rate of each
ARM is subject to adjustment in accordance with the related Promissory Note.

            Rating Agencies: S&P and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.

            Refinanced Loan: A Loan the proceeds of which were not used to
purchase the related Mortgaged Property.

            Released Mortgaged Property Proceeds: With respect to any Loan,
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which proceeds in
either case are not released to the Borrower in accordance with applicable law
and/or Accepted Servicing Practices.

            Remittance Date: The Business Day immediately preceding each Payment
Date.

            Remittance Period: With respect to any Payment Date, the period
commencing immediately following the Determination Date for the preceding
Payment Date (or, in the case of the initial Payment Date, commencing
immediately following the initial Transfer Cut-off Date) and ending on and
including the related Determination Date.

            REO Property: Real property (including all improvements and fixtures
on the Mortgaged Property) acquired by or on behalf of the Company through
foreclosure sale or by deed in lieu of foreclosure or otherwise.

            Repurchase Price: With respect to any Loan, the sum of (i) the
Principal Balance thereof as of the date of purchase or repurchase, (ii) all
accrued and unpaid interest on such Loan to the date of purchase or repurchase
computed at the applicable Loan Interest Rate, (iii) the amount of any
unreimbursed Servicing Advances made by the Servicer with respect to such Loan
(after deducting therefrom any amounts received in respect of such purchased or
repurchased Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase) and (iv)
the amount of any damages incurred by the Note Purchaser as a result of the
violation of any Loan of any predatory or abusive lending law. To the extent the
Servicer does not reimburse itself for amounts, if any, in respect of the
Servicing Advance Reimbursement Amount pursuant to Section 5.4 of the Facility
Administration Agreement, with respect to such Loan, the Repurchase Price shall
be reduced by such amounts.

            Responsible Officer: When used with respect to the Facility
Administrator or Custodian, any officer within the corporate trust office of
such Person, including any Vice President, Assistant Vice President, Secretary,
Assistant Secretary or

                                       17
<PAGE>

any other officer of such Person customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject. When used with respect to the Company or any officer of the Owner
Trustee who is authorized to act for the Owner Trustee in matters relating to
the Company and who is identified on the list of Authorized Officers delivered
by the Administrator to the Owner Trustee on the date hereof (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Vice President or more senior officer
of the Administrator who is authorized to act for the Administrator in matters
relating to the Company and to be acted upon by the Administrator pursuant to
the Administration Agreement and who is identified on the list of Responsible
Officers delivered by the Administrator to the Owner Trustee on the date hereof
(as such list may be modified or supplemented from time to time thereafter).
When used with respect to the Depositor, the Loan Originator or the Servicer,
the President, any Vice President, or the Treasurer.

            Retained Securities: With respect to a Securitization, any
subordinated securities issued or expected to be issued, or excess collateral
value retained or expected to be retained, in connection therewith to the extent
the Depositor, the Loan Originator or an Affiliate thereof decides in its sole
discretion to retain, instead of sell, such securities.

            Retained Securities Value: With respect to any Business Day and a
Retained Security, the market value thereof as determined by the Market Value
Agent in accordance with Section 6.01(c).

            Sales Price: For any Transfer Date, the sum of the Collateral Values
with respect to each Loan conveyed on such Transfer Date as of such Transfer
Date.

            S&SA Assignment: An Assignment, in substantially the form of Exhibit
C, of Loans and other property from the Depositor to the Company pursuant to
this Agreement.

            Second Lien Loan: A Loan secured by the lien on the Mortgaged
Property, subject to one Senior Lien on such Mortgaged Property.

            Secured Note: As defined in the Note Purchase Agreement.

            Secured Note Principal Balance: The outstanding unpaid principal
balance of the related Secured Note.

            Securities: The Notes and the Trust Certificates.

            Securities Intermediary: A "securities intermediary" as defined in
Section 8-102(a)(14) of the UCC that is holding a Trust Account for the Facility
Administrator as the sole "entitlement holder" as defined in Section 8-102(a)(7)
of the UCC.

            Securitization: As defined in the Disposition Agreement.

                                       18
<PAGE>

            Securityholder: Any Noteholder or Certificateholder.

            Senior Lien: With respect to any Second Lien Loan, the mortgage loan
having a senior priority lien on the related Mortgaged Property.

            Servicer: Option One, in its capacity as the master servicer
hereunder, or any successor appointed as herein provided.

            Servicer Call: The optional repurchase by the Servicer of a Loan
pursuant to Section 3.08.

            Servicer Event of Default: As described in Section 8.01.

            Servicer's Fiscal Year: May 1st through April 30th of each year.

            Servicer's Loan File: With respect to each Loan, the file held by
the Servicer, consisting of all documents (or electronic images thereof)
relating to such Loan, including, without limitation, copies of all of the Loan
Documents included in the related Custodial Loan File.

            Servicing Addendum: The terms and provisions set forth in Exhibit F
relating to the administration and servicing of the Loans.

            Servicing Advance Reimbursement Amount: With respect to any
Determination Date, the amount of any Servicing Advances that have not been
reimbursed as of such date, including Nonrecoverable Servicing Advances.

            Servicing Advances: As defined in Section 4.14(b) of the Servicing
Addendum.

            Servicing Compensation: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to Section 4.15 in the Servicing Addendum.

            Servicing Fee: As to each Loan (including any Loan that has been
foreclosed and for which the related Mortgaged Property has become a Foreclosure
Property, but excluding any Liquidated Loan), the fee payable monthly to the
Servicer, which shall be the product of 0.50% (50 basis points), or such other
lower amount as shall be mutually agreed to in writing by the Majority
Noteholders and the Servicer, and the Principal Balance of such Loan as of the
beginning of the related Remittance Period, divided by 12. The Servicing Fee
shall only be payable to the extent interest is collected on a Loan.

            Servicing Officer: Any officer of the Servicer or Subservicer
involved in, or responsible for, the administration and servicing of the Loans
whose name and specimen signature appears on a list of servicing officers
annexed to an Officer's Certificate furnished by the Servicer or the
Subservicer, respectively, on the date hereof to the Company and the Facility
Administrator, on behalf of the Noteholders, as such list may from time to time
be amended.

                                       19
<PAGE>

            S&P: Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.

            State: Means any one of the states of the United States of America
or the District of Columbia.

            Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.22 in the Servicing Addendum in respect of
the qualifications of a Subservicer.

            Subservicing Account: An account established by a Subservicer
pursuant to a Subservicing Agreement, which account must be an Eligible Account.

            Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in Section 4.22 in the Servicing Addendum.

            Substitution Adjustment: As to any date on which a substitution
occurs pursuant to Section 2.05 or Section 3.06, the amount, if any, by which
(a) the aggregate principal balance of any Qualified Substitute Loans (after
application of principal payments received on or before the related Transfer
Cut-off Date) is less than (b) the aggregate of the Principal Balances of the
related Deleted Loans as of the first day of the month in which such
substitution occurs.

            Tangible Equity: As defined in the Note Purchase Agreement.

            Transfer Cut-off Date: With respect to each Loan, the first day of
the month in which the Transfer Date with respect to such Loan occurs or if
originated in such month, the date of origination.

            Transfer Cut-off Date Principal Balance: As to each Loan, its
Principal Balance as of the opening of business on the Transfer Cut-off Date
(after giving effect to any payments received on the Loan before the Transfer
Cut-off Date).

            Transfer Date: With respect to each Loan, the day such Loan is sold
and conveyed to the Depositor by the Loan Originator pursuant to the Loan
Purchase and Contribution Agreement and to the Company by the Depositor pursuant
to Section 2.01, which results in the issuance of a Secured Note in an original
principal amount equal to the related Advance Amount, subject to any limitations
in frequency and minimum amounts as may be imposed by the Note Purchase
Agreement. With respect to any Qualified Substitute Loan, the Transfer Date
shall be the day such Loan is conveyed to the Trust pursuant to Section 2.05 or
3.06. The Transfer Date shall be no later than the corresponding Advance Date
under the Note Purchase Agreement.

            Transfer Obligation: The obligation of the Loan Originator under
Section 5.06 to make certain payments in connection with Dispositions and other
related matters.

                                       20
<PAGE>

            Trust: Option One Owner Trust 2002-3, the Delaware business trust
created pursuant to the Trust Agreement.

            Trust Agreement: The Trust Agreement dated as of July 2, 2002
between the Depositor and the Owner Trustee.

            Trust Account Property: The Trust Accounts, all amounts and
investments held from time to time in the Trust Accounts and all proceeds of the
foregoing.

            Trust Accounts: The Collection Account.

            Trust Certificate: The meaning assigned thereto in the Trust
Agreement.

            UCC: The Uniform Commercial Code as in effect in the State of New
York from time to time.

            UCC Assignment: A form "UCC-2" or "UCC-3" statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.

            UCC-1 Financing Statement: A financing statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction.

            Underwriting Standards: As defined in the Note Purchase Agreement.

            Unqualified Loan: As defined in Section 3.06(a).

            Wet Funded Custodial File Delivery Date: With respect to a Wet
Funded Loan, the later of the fifteenth Business Day and the twentieth calendar
day after the related Transfer Date, provided that if a Default or Event of
Default shall have occurred, the Wet Funded Custodial File Delivery Date shall
be the earlier of (x) such fifteenth Business Day or twentieth calendar day and
(y) the fifth day after the occurrence of such event.

            Wet Funded Loan: A Loan which is pledged to the Note Purchaser,
simultaneously with the origination thereof by the Company pursuant to 2.4(d) of
the Note Purchase Agreement and is funded in part or in whole with proceeds of
the purchase of Notes. A Loan shall cease to be a Wet Funded Loan when documents
are received by the Custodian as provided in Section 2.4(d)(iii).

            Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan
sale.

            Section 1.02. Other Definitional Provisions.

                  (a) Any agreement, instrument or statute defined or referred
      to herein or in any instrument or certificate delivered in connection
      herewith means such agreement, instrument or statute as from time to time
      amended, modified or

                                       21
<PAGE>

      supplemented and includes (in the case of agreements or instruments)
      references to all attachments thereto and instruments incorporated
      therein; references to a Person are also to its permitted successors and
      assigns.

                  (b) All terms defined in this Agreement shall have the defined
      meanings when used in any certificate or other document made or delivered
      pursuant hereto unless otherwise defined therein.

                  (c) As used in this Agreement and in any certificate or other
      document made or delivered pursuant hereto or thereto, accounting terms
      not defined in this Agreement or in any such certificate or other
      document, and accounting terms partly defined in this Agreement or in any
      such certificate or other document to the extent not defined, shall have
      the respective meanings given to them under GAAP. To the extent that the
      definitions of accounting terms in this Agreement or in any such
      certificate or other document are inconsistent with the meanings of such
      terms under GAAP, the definitions contained in this Agreement or in any
      such certificate or other document shall control.

                  (d) The words "hereof," "herein," "hereunder" and words of
      similar import when used in this Agreement shall refer to this Agreement
      as a whole and not to any particular provision of this Agreement; Article,
      Section, Schedule and Exhibit references contained in this Agreement are
      references to Articles, Sections, Schedules and Exhibits in or to this
      Agreement unless otherwise specified; and the term "including" shall mean
      "including without limitation."

                  (e) The definitions contained in this Agreement are applicable
      to the singular as well as the plural forms of such terms and to the
      masculine as well as to the feminine and neuter genders of such terms.

                  (f) Wells Fargo Bank, N.A. is the successor in interest to
      Wells Fargo Bank Minnesota, National Association. Any references to Wells
      Fargo Bank Minnesota, National Association in this agreement or in any
      other agreement related to this agreement shall be construed to mean Wells
      Fargo Bank, N.A.

                                   ARTICLE II

                    CONVEYANCE OF THE LOANS; ADVANCE AMOUNTS

            Section 2.01. Conveyance of the Loans.

                  (a) On the terms and conditions of this Agreement, on each
      Transfer Date, the Depositor agrees to offer for sale and to sell the
      Loans and deliver the related Loan Documents to or at the direction of the
      Company. To the extent the Company has or is able to obtain sufficient
      funds under the Note Purchase Agreement and the Secured Notes for the
      purchase thereof, the Company agrees to purchase such Loans offered for
      sale by the Depositor.

                                       22
<PAGE>

                  (b) In consideration of the payment of the Sales Price
      pursuant to Section 2.06 and, to the extent of any value in excess of the
      Sales Price, as a contribution to the capital of the Company, the
      Depositor, as of the related Transfer Date and concurrently with the
      execution and delivery hereof, hereby sells, transfer assigns, sets over
      and otherwise conveys to the Company, without recourse, but subject to the
      other terms and provisions of this Agreement, all of the right, title and
      interest of the Depositor in and to the Company Estate.

                  (c) During the Funding Period, on each Transfer Date, subject
      to the conditions precedent set forth in Section 2.06(a) and in accordance
      with the procedures set forth in this Agreement, the Depositor, pursuant
      to an S&SA Assignment, will assign to the Company without recourse all of
      its respective right, title and interest, in and to the Loans and all
      proceeds thereof listed on the Loan Schedule attached to such S&SA
      Assignment, including all interest, principal, prepayment fees and other
      amounts received by the Loan Originator, the Depositor or the Servicer on
      or with respect to the Loans on or after the related Transfer Cut-off
      Date, together with servicing rights and all right, title and interest in
      and to the proceeds of any related Mortgage Insurance Policies and all of
      the Depositor's rights, title and interest in and to (but none of its
      obligations under) the Loan Purchase and Contribution Agreement and all
      proceeds of the foregoing.

                  (d) The foregoing sales, transfers, assignments, set overs and
      conveyances do not, and are not intended to, result in a creation or an
      assumption by the Company of any of the obligations of the Depositor, the
      Loan Originator or any other Person in connection with the Loans or under
      any agreement or instrument relating thereto except as specifically set
      forth herein.

                  (e) As of the Closing Date and as of each Transfer Date, the
      Company acknowledges (or will acknowledge pursuant to the S&SA Assignment)
      the conveyance to it of the Loans and other property comprising the
      Company Estate, including all rights, title and interest of the Depositor
      in and to the Loans, receipt of which is hereby acknowledged by the
      Company. Concurrently with such delivery, as of the Closing Date and as of
      each Transfer Date, pursuant to the Facility Administration Agreement the
      Company pledges the Loans and all the other property comprising the
      Company Estate to the Facility Administrator as collateral agent and
      secured party on behalf and for the benefit of the Noteholders. In
      addition, concurrently with such delivery and in exchange therefor, the
      Owner Trustee, pursuant to the instructions of the Depositor, has executed
      (not in its individual capacity, but solely as Owner Trustee on behalf of
      the Company) and caused the Trust Certificates to be authenticated and
      delivered to or at the direction of the Depositor.

            Section 2.02. Ownership and Possession of Loan Files.

            With respect to each Loan, as of the related Transfer Date the
ownership of the related Promissory Note, the related Mortgage and the contents
of the related Servicer's Loan File and Custodial Loan File shall be vested in
the Company for the benefit of the Securityholders, although possession of the
Servicer's Loan File on behalf

                                       23
<PAGE>

of and for the benefit of the Securityholders shall remain with the Servicer,
and the Custodian shall take possession of the Custodial Loan Files as
contemplated in Section 2.05.

            Section 2.03. Books and Records; Intention of the Parties.

                  (a) As of each Transfer Date, the sale of each of the Loans
      conveyed on such Transfer Date shall be reflected on the balance sheets
      and other financial statements of the Depositor and the Loan Originator,
      as the case may be, as a sale of assets by the Depositor and a sale of
      assets and a contribution to capital by the Loan Originator, as the case
      may be, under GAAP. Each of the Servicer and the Custodian shall be
      responsible for maintaining, and shall maintain, a complete set of books
      and records for each Loan which shall be clearly marked to reflect the
      ownership of each Loan, as of the related Transfer Date, by the Company
      and for the benefit of the Securityholders.

                  (b) It is the intention of the parties hereto that, other than
      for federal, state and local income or franchise tax purposes, the
      transfers and assignments of the Loans and other property comprising the
      Company Estate on the initial Closing Date, on each Transfer Date and as
      otherwise contemplated by the Basic Documents and the Assignments shall
      constitute a sale of the Loans from the Depositor to the Company and such
      Loans shall not thereafter be property of the Depositor. The parties
      hereto shall treat the Secured Notes as indebtedness for federal, state
      and local income and franchise tax purposes.

                  (c) If any of the assignments and transfers of the Loans to
      the Company pursuant to this Agreement or the conveyance of the Loans
      other than for federal, state and local income or franchise tax purposes,
      is held or deemed not to be a sale or is held or deemed to be a pledge of
      security for a loan, the Depositor intends that the rights and obligations
      of the parties shall be established pursuant to the terms of this
      Agreement and that, in such event, with respect to such property, (i)
      consisting of Loans and related property, the Depositor shall be deemed to
      have granted, as of the related Transfer Date, to the Company a first
      priority security interest in the entire right, title and interest of the
      Depositor in and to such Loans and proceeds and all other property
      conveyed to the Company as of such Transfer Date, (ii) consisting of any
      other property specified in Section 2.01(a), the Depositor shall be deemed
      to have granted, as of the initial Closing Date, to the Company a first
      priority security interest in the entire right, title and interest of the
      Depositor in and to such property and the proceeds thereof. In such event,
      with respect to such property, this Agreement shall constitute a security
      agreement under applicable law.

                  (d) Within ten (10) days of the initial Advance Date, the
      Depositor shall, at each party's sole expense, cause to be filed UCC-1
      Financing Statements naming the Company as "secured party" and describing
      the Collateral being sold by the Depositor to the Company with the office
      of the Secretary of State of the state in which the Depositor is located
      and any other jurisdictions as shall be necessary to perfect a security
      interest in the Collateral. In addition, within ten (10) days of the

                                       24
<PAGE>

      initial Advance Date, the Loan Originator shall, at its expense, cause to
      be filed UCC-1 Financing Statements naming the Depositor as "secured
      party" and describing the Loans being sold by the Loan Originator to the
      Depositor with the office of the Secretary of the State in which the Loan
      Originator is located and such other jurisdictions as shall be necessary
      to perfect a security interest in the Collateral.

            Section 2.04. Delivery of Loan Documents.

                  (a) The Loan Originator shall, prior to the related Transfer
      Date (or, in the case of each Wet Funded Loan, the related Wet Funded
      Custodial File Delivery Date), in accordance with the terms and conditions
      set forth in the Custodial Agreement, deliver or cause to be delivered to
      the Custodian, a Loan Schedule and each of the documents constituting the
      Custodial Loan File with respect to each Loan. The Loan Originator shall
      assure that (i) in the event that any Wet Funded Loan is not closed and
      funded to the order of the appropriate Borrower on the day funds are
      provided to the Loan Originator by the Note Purchaser on behalf of the
      Company, such funds shall be promptly returned to the Note Purchaser on
      behalf of the Company and (ii) in the event that any Wet Funded Loan is
      subject to a rescission, all funds received in connection with such
      rescission shall be promptly returned by the Loan Originator to the Note
      Purchaser on behalf of the issuer.

                  (b) The Loan Originator shall, on the related Transfer Date
      (or in the case of a Wet Funded Loan, on or before the related Wet Funded
      Custodial File Delivery Date), deliver or cause to be delivered to the
      Servicer the related Servicer's Loan File (i) for the benefit of, and as
      agent for, the Note Purchaser and (ii) for the benefit of the Custodian,
      on behalf of the Noteholders, for so long as the Secured Notes are
      outstanding; after the Secured Notes are not outstanding, the Servicer's
      Loan File shall be held in the custody of the Servicer for the benefit of,
      and as agent for, the Certificateholders.

               (i) with respect to any Loans which are set forth as exceptions
         in the Exceptions Report, the Loan Originator shall cure such
         exceptions by delivering such missing documents to the Custodian or
         otherwise curing the defect no later than, in the case of (x) a non-Wet
         Funded Loan, 5 Business Days, or (y) in the case of a Wet Funded Loan
         one Business Day after the Wet Funded Custodial File Delivery Date, in
         each case, following the receipt of the first Exceptions Report listing
         such exception with respect to such Loan.

                  (c) The Facility Administrator shall cause the Custodian to
      take and maintain continuous physical possession of the Custodial Loan
      Files in the State of California (or, provided that the Note Purchaser is
      given prior written notice thereof and the Company causes to be delivered
      to the Note Purchaser an Opinion of Counsel with respect to the continued
      perfection of the Facility Administrator's security interest in the
      Custodial Loan Files notwithstanding such move, at a facility maintained
      by the Custodian in another state) and, in connection therewith, shall act
      solely as agent for the Noteholders in accordance with the terms hereof
      and not as agent for the Loan Originator, the Servicer or any other party.

                                       25
<PAGE>

            Section 2.05. Acceptance by the Facility Administrator of the Loans;
Certain Substitutions and Repurchases; Certification by the Custodian.

                  (a) The Facility Administrator declares that it will cause the
      Custodian to hold the Custodial Loan Files and any additions, amendments,
      replacements or supplements to the documents contained therein, as well as
      any other assets delivered to the Custodian, in trust, upon and subject to
      the conditions set forth herein. The Facility Administrator further agrees
      to cause the Custodian to execute and deliver such certifications as are
      required under the Custodial Agreement and to otherwise direct the
      Custodian to perform all of its obligations with respect to the Custodial
      Loan Files in strict accordance with the terms of the Custodial Agreement.

                  (b) (i) With respect to any Loans which are set forth as
      exceptions in the Exceptions Report, the Loan Originator shall cure such
      exceptions by delivering such missing documents to the Custodian or
      otherwise curing the defect no later than 5 Business Days, following the
      receipt of the first Exceptions Report listing such exception with respect
      to such Loan.

               (ii) In the event that, with respect to any Loan, the Loan
         Originator does not comply with the document delivery requirements of
         Section 2 of the Custodial Agreement, the Loan Originator shall
         repurchase such Loan within one Business Day of notice thereof from the
         Facility Administrator or the Note Purchaser at the Repurchase Price
         thereof with respect to such Loan by depositing such Repurchase Price
         in the Collection Account. In lieu of such a repurchase, the Depositor
         and Loan Originator may comply with the substitution provisions of
         Section 3.06. The Loan Originator shall provide the Servicer, the
         Facility Administrator, the Company and the Note Purchaser with a
         certification of a Responsible Officer on or prior to such repurchase
         or substitution indicating that the Loan Originator intends to
         repurchase or substitute such Loan.

               (iii) It is understood and agreed that the obligation of the Loan
         Originator to repurchase or substitute any such Loan pursuant to this
         Section 2.05(b) shall constitute the sole remedy with respect to such
         failure to comply with the foregoing delivery requirements.

                  (c) The Servicer's Loan File shall be held in the custody of
      the Servicer (i) for the benefit of, and as agent for, the Noteholders and
      (ii) for the benefit of the Facility Administrator, on behalf of the
      Noteholders, for so long as the Secured Notes are outstanding; after the
      Secured Notes are not outstanding, the Servicer's Loan File shall be held
      in the custody of the Servicer for the benefit of, and as agent for, the
      Certificateholders. It is intended that, by the Servicer's agreement
      pursuant to this Section 2.05(c), the Facility Administrator shall be
      deemed to have possession of the Servicer's Loan Files for purposes of
      Section 9-305 of the UCC of the state in which such documents or
      instruments are located. The Servicer shall promptly report to the
      Facility Administrator any failure by it to hold the Servicer's Loan File
      as herein provided and shall promptly take appropriate action to remedy
      any such failure. In acting as custodian of such documents and
      instruments, the Servicer agrees not to

                                       26
<PAGE>

      assert any legal or beneficial ownership interest in the Loans or such
      documents or instruments. Subject to Section 7.01(d), the Servicer agrees
      to indemnify the Securityholders and the Facility Administrator, their
      officers, directors, employees, agents and "control persons" as such term
      is used under the Act and under the Securities Exchange Act of 1934, as
      amended for any and all liabilities, obligations, losses, damages,
      payments, costs or expenses of any kind whatsoever which may be imposed
      on, incurred by or asserted against the Securityholders or the Facility
      Administrator as the result of the negligence or willful misfeasance by
      the Servicer relating to the maintenance and custody of such documents or
      instruments which have been delivered to the Servicer; provided, however,
      that the Servicer will not be liable for any portion of any such amount
      resulting from the negligence or willful misconduct of any Securityholders
      or the Facility Administrator; and provided, further, that the Servicer
      will not be liable for any portion of any such amount resulting from the
      Servicer's compliance with any instructions or directions consistent with
      this Agreement issued to the Servicer by the Facility Administrator or the
      Majority Noteholders. The Facility Administrator shall have no duty to
      monitor or otherwise oversee the Servicer's performance as custodian of
      the Servicer Loan File hereunder.

            Section 2.06. Conditions Precedent to Transfer Dates.

                  (a) At least two (2) Business Days prior to each Transfer
      Date, the Company shall give notice to the Note Purchaser of such upcoming
      Transfer Date and provide an estimate of the number of Loans and aggregate
      Principal Balance of such Loans to be transferred on such Transfer Date.
      Two Business Days prior to each Transfer Date, the Company shall provide
      the Note Purchaser a final Loan Schedule with respect to the Loans to be
      transferred on such Transfer Date. On each Transfer Date, the Depositor
      shall convey to the Company, the Loans and the other property and rights
      related thereto described in the related S&SA Assignment, and the Company,
      only upon the satisfaction of each of the conditions set forth below on or
      prior to such Transfer Date, shall deposit or cause to be deposited cash
      in the amount of the Advance Amount received from the Note Purchaser in
      the General Operating Account in respect thereof, and the Servicer shall,
      promptly after such deposit, withdraw the amount deposited in respect of
      applicable Advance Amount from the General Operating Account, and
      distribute such amount to or at the direction of the Depositor.

            As of the Closing Date and each Transfer Date:

               (i) the Depositor and the Servicer, as applicable, shall have
         delivered to the Company and the Note Purchaser duly executed
         Assignments, which shall have attached thereto a Loan Schedule setting
         forth the appropriate information with respect to all Loans conveyed on
         such Transfer Date and shall have delivered to the Note Purchaser a
         computer readable transmission of such Loan Schedule;

                                       27
<PAGE>

               (ii) the Depositor shall have deposited in the Collection Account
         all collections received with respect to each of the Loans conveyed on
         such Transfer Date on and after the applicable Transfer Cut-off Date;

               (iii) as of such Transfer Date, neither the Loan Originator, nor
         the Depositor shall (A) be insolvent, (B) be made insolvent by its
         respective sale of Loans or (C) have reason to believe that its
         insolvency is imminent;

               (iv) the Funding Period shall be in effect;

               (v) the Company shall have delivered the Custodial Loan File to
         the Custodian in accordance with the Custodial Agreement and the Note
         Purchaser shall have received a copy of the Exceptions Report
         reflecting such delivery;

               (vi) each of the representations and warranties made by the Loan
         Originator contained in Exhibit E with respect to the Loans shall be
         true and correct in all material respects as of the related Transfer
         Date with the same effect as if then made, and the Depositor shall have
         performed all obligations to be performed by it under the Basic
         Documents on or prior to such Transfer Date;

               (vii) the Depositor shall, at its own expense, within one
         Business Day following the Transfer Date, indicate in its computer
         files that the Loans identified in each S&SA Assignment have been sold
         to the Company pursuant to this Agreement and the S&SA Assignment;

               (viii) the Depositor shall have taken any action requested by the
         Facility Administrator, the Company or the Noteholders required to
         maintain the ownership interest of the Company in the Loans conveyed;

               (ix) no selection procedures believed by the Depositor to be
         adverse to the interests of the Noteholders shall have been utilized in
         selecting the Loans to be conveyed on such Transfer Date or Closing
         Date;

               (x) the Company shall have provided the Note Purchaser no later
         than two Business Days prior to such date a Notice of Borrowing
         pursuant to Section 2.4 of the Note Purchase Agreement, with a copy to
         the Facility Administrator;

               (xi) after giving effect to the Advance Amount associated
         therewith, the Secured Note Principal Balance will not exceed the
         Maximum Note Principal Balance;

               (xii) all conditions precedent to the Depositor's purchase of
         Loans pursuant to the Loan Purchase and Contribution Agreement shall
         have been fulfilled as of such Transfer Date or Closing Date; and

               (xiii) all conditions precedent to the Noteholders' purchase of
         the Advance Amount pursuant to the Note Purchase Agreement shall have
         been fulfilled as of such Transfer Date or Closing Date.

                                       28
<PAGE>

            (xiv) in the case of non-Wet Funded Loans, the Company shall have
         delivered the Custodial Loan File to the Custodian in accordance with
         the Custodial Agreement and the Initial Noteholder shall have received
         a copy of the Trust Receipt and the Exceptions Report reflecting such
         delivery.

            Section 2.07. Termination of Funding Period.

            Upon the occurrence of an Event of Default or Default, the Note
Purchaser may, in its sole discretion, terminate the Funding Period, provided
that if the precipitating Default is cured before it becomes an Event of Default
and no other Default or Event of Default, or any Performance Trigger Event that
has not been Deemed Cured, then exists, the Funding Period shall be reinstated.

            Section 2.08. Correction of Errors.

            The Company, the Depositor, the Loan Originator and the Servicer
shall cooperate to reconcile any errors in calculating the Sales Price from and
after the Closing Date. In the event that an error in the Sales Price is
discovered by any such party, including, without limitation, any error due to
miscalculations of Market Value where insufficient information has been provided
with respect to a Loan to make an accurate determination of Market Value as of
any applicable Transfer Date, any miscalculations of Principal Balance, accrued
interest or aggregate unreimbursed Servicing Advances attributable to the
applicable Loan, or any prepayments not properly credited, such party shall give
prompt notice to the other parties hereto, and the party that shall have
benefited from such error shall promptly remit to the other, by wire transfer of
immediately available funds, the amount of such error with no interest thereon.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

            Section 3.01. Representations and Warranties of the Depositor.

            The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date, as of each
Transfer Date:

                  (a) The Depositor is a corporation duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization and has, and had at all relevant times, full power to own its
      property, to carry on its business as currently conducted, to enter into
      and perform its obligations under each Basic Document to which it is a
      party;

                  (b) The execution and delivery by the Depositor of each Basic
      Document to which the Depositor is a party and its performance of and
      compliance with all of the terms thereof will not violate the Depositor's
      organizational documents or constitute a default (or an event which, with
      notice or lapse of time, or both, would constitute a default) under, or
      result in the breach or acceleration of, any material

                                       29
<PAGE>

      contract, agreement or other instrument to which the Depositor is a party
      or which are applicable to the Depositor or any of its assets;

                  (c) The Depositor has the full power and authority to enter
      into and consummate the transactions contemplated by each Basic Document
      to which the Depositor is a party, has duly authorized the execution,
      delivery and performance of each Basic Document to which it is a party and
      has duly executed and delivered each Basic Document to which it is a
      party; each Basic Document to which it is a party, assuming due
      authorization, execution and delivery by the other party or parties
      thereto, constitutes a valid, legal and binding obligation of the
      Depositor, enforceable against it in accordance with the terms thereof,
      except as such enforcement may be limited by bankruptcy, insolvency,
      reorganization, receivership, moratorium or other similar laws relating to
      or affecting the rights of creditors generally, and by general equity
      principles (regardless of whether such enforcement is considered in a
      proceeding in equity or at law);

                  (d) The Depositor is not in violation of, and the execution
      and delivery by the Depositor of each Basic Document to which the
      Depositor is a party and its performance and compliance with the terms of
      each Basic Document to which the Depositor is a party will not constitute
      a violation with respect to, any order or decree of any court or any order
      or regulation of any federal, state, municipal or governmental agency
      having jurisdiction, which violation would materially and adversely affect
      the condition (financial or otherwise) or operations of the Depositor or
      any of its properties or materially and adversely affect the performance
      of any of its duties hereunder;

                  (e) There are no actions or proceedings against, or
      investigations of, the Depositor currently pending with regard to which
      the Depositor has received service of process and no action or proceeding
      against, or investigation of, the Depositor is, to the knowledge of the
      Depositor, threatened or otherwise pending before any court,
      administrative agency or other tribunal that (A) if determined adversely
      to the Depositor, would reasonably be expected to prohibit its entering
      into any of the Basic Documents to which it is a party or render the
      Securities invalid, (B) seek to prevent the issuance of the Securities or
      the consummation of any of the transactions contemplated by any of the
      Basic Documents to which it is a party or (C) if determined adversely to
      the Depositor, would reasonably be expected to prohibit or materially and
      adversely affect the performance by the Depositor of its obligations
      under, or the validity or enforceability of, any of the Basic Documents to
      which it is a party or the Securities;

                  (f) No consent, approval, authorization or order of any court
      or governmental agency or body is required for the execution, delivery and
      performance by the Depositor of, or compliance by the Depositor with, any
      of the Basic Documents to which the Depositor is a party or the
      Securities, or for the consummation of the transactions contemplated by
      any of the Basic Documents to which the Depositor is a party, except for
      such consents, approvals, authorizations and orders, if any, that have
      been obtained prior to such date;

                                       30
<PAGE>

                  (g) The Depositor is solvent, is able to pay its debts as they
      become due and has capital sufficient to carry on its business and its
      obligations hereunder; it will not be rendered insolvent by the execution
      and delivery of any of the Basic Documents to which it is a party or the
      assumption of any of its obligations thereunder; no petition of bankruptcy
      (or similar insolvency proceeding) has been filed by or against the
      Depositor;

                  (h) The Depositor did not transfer the Loans sold thereon to
      the Trust with any intent to hinder, delay or defraud any of its
      creditors; nor will the Depositor be rendered insolvent as a result of
      such sale;

                  (i) The Depositor had good title to, and was the sole owner
      of, each Loan sold thereon by the Depositor free and clear of any lien
      other than any such lien released simultaneously with the sale
      contemplated herein, and, immediately upon each transfer and assignment
      herein contemplated, the Depositor will have delivered to the Trust good
      title to, and the Trust will be the sole owner of, each Loan transferred
      by the Depositor thereon free and clear of any lien;

                  (j) The Depositor acquired title to each of the Loans sold
      thereon by the Depositor in good faith, without notice of any adverse
      claim;

                  (k) None of the Basic Documents to which the Depositor is a
      party, nor any Officer's Certificate, statement, report or other document
      prepared by the Depositor and furnished or to be furnished by it pursuant
      to any of the Basic Documents to which it is a party or in connection with
      the transactions contemplated thereby contains any untrue statement of
      material fact or omits to state a material fact necessary to make the
      statements contained herein or therein not misleading;

                  (l) The Depositor is not required to be registered as an
      "investment company," under the Investment Company Act of 1940, as
      amended;

                  (m) The transfer, assignment and conveyance of the Loans by
      the Depositor thereon pursuant to this Agreement is not subject to the
      bulk transfer laws or any similar statutory provisions in effect in any
      applicable jurisdiction;

                  (n) The Depositor's principal place of business and chief
      executive offices are located at Irvine California; and

                  (o) The Depositor covenants that during the continuance of
      this Agreement it will comply in all respects with the provisions of its
      organizational documents in effect from time to time.

            Section 3.02. Representations and Warranties of the Loan Originator.

            The Loan Originator hereby represents and warrants to the other
parties hereto and the Securityholders that as of the Closing Date, as of each
Transfer Date:

                                       31
<PAGE>

                  (a) The Loan Originator is a corporation duly organized,
      validly existing and in good standing under the laws of the jurisdiction
      of its organization and (i) is duly qualified, in good standing and
      licensed to carry on its business in each state where any Mortgaged
      Property related to a Loan sold by it is located and (ii) is in compliance
      with the laws of any such jurisdiction, in both cases, to the extent
      necessary to ensure the enforceability of such Loans in accordance with
      the terms thereof and had at all relevant times, full corporate power to
      originate such Loans, to own its property, to carry on its business as
      currently conducted and to enter into and perform its obligations under
      each Basic Document to which it is a party;

                  (b) The execution and delivery by the Loan Originator of each
      Basic Document to which it is a party and its performance of and
      compliance with the terms thereof will not violate the Loan Originator's
      articles of organization or by-laws or constitute a default (or an event
      which, with notice or lapse of time, or both, would constitute a default)
      under, or result in the breach or acceleration of, any contract, agreement
      or other instrument to which the Loan Originator is a party or which may
      be applicable to the Loan Originator or any of its assets;

                  (c) The Loan Originator has the full power and authority to
      enter into and consummate all transactions contemplated by the Basic
      Documents to be consummated by it, has duly authorized the execution,
      delivery and performance of each Basic Document to which it is a party and
      has duly executed and delivered each Basic Document to which it is a
      party; each Basic Document to which it is a party, assuming due
      authorization, execution and delivery by each of the other parties
      thereto, constitutes a valid, legal and binding obligation of the Loan
      Originator, enforceable against it in accordance with the terms hereof,
      except as such enforcement may be limited by bankruptcy, insolvency,
      reorganization, receivership, moratorium or other similar laws relating to
      or affecting the rights of creditors generally, and by general equity
      principles (regardless of whether such enforcement is considered in a
      proceeding in equity or at law);

                  (d) The Loan Originator is not in violation of, and the
      execution and delivery of each Basic Document to which it is a party by
      the Loan Originator and its performance and compliance with the terms of
      each Basic Document to which it is a party will not constitute a violation
      with respect to, any order or decree of any court or any order or
      regulation of any federal, state, municipal or governmental agency having
      jurisdiction, which violation would materially and adversely affect the
      condition (financial or otherwise) or operations of the Loan Originator or
      its properties or materially and adversely affect the performance of its
      duties under any Basic Document to which it is a party;

                  (e) There are no actions or proceedings against, or
      investigations of, the Loan Originator currently pending with regard to
      which the Loan Originator has received service of process and no action or
      proceeding against, or investigation of, the Loan Originator is, to the
      knowledge of the Loan Originator, threatened or otherwise pending before
      any court, administrative agency or other tribunal that (A) if determined
      adversely to the Loan Originator, would reasonably be expected to prohibit

                                       32
<PAGE>

      its entering into any Basic Document to which it is a party or render the
      Securities invalid, (B) seek to prevent the issuance of the Securities or
      the consummation of any of the transactions contemplated by any Basic
      Document to which it is a party or (C) if determined adversely to the Loan
      Originator, would reasonably be expected to prohibit or materially and
      adversely affect the sale of the Loans to the Depositor, the performance
      by the Loan Originator of its obligations under, or the validity or
      enforceability of, any Basic Document to which it is a party or the
      Securities; provided, however, that with respect to the Loan Originator's
      obligations under Section 9.1(c) of the Note Purchase Agreement, there
      shall also be a reasonable possibility of an adverse determination of such
      action, proceeding or investigation;

                  (f) No consent, approval, authorization or order of any court
      or governmental agency or body is required for: (1) the execution,
      delivery and performance by the Loan Originator of, or compliance by the
      Loan Originator with, any Basic Document to which it is a party, (2) the
      issuance of the Securities, (3) the sale of the Loans, or (4) the
      consummation of the transactions required of it by any Basic Document to
      which it is a party, except such as shall have been obtained before such
      date;

                  (g) Immediately prior to the Transfer Date related thereto,
      the Loan Originator had good title to the Loans sold by it on such
      Transfer Date without notice of any adverse claim;

                  (h) The information, reports, financial statements, exhibits
      and schedules furnished in writing by or on behalf of the Loan Originator
      to the Note Purchaser in connection with the negotiation, preparation or
      delivery of the Basic Documents to which it is a party or delivered
      pursuant thereto, when taken as a whole, do not contain any untrue
      statement of material fact or omit to state any material fact necessary to
      make the statements therein, in light of the circumstances under which
      they were made, not misleading. All written information furnished after
      the date hereof by or on behalf of the Loan Originator to the Note
      Purchaser in connection with the Basic Documents to which it is a party
      and the transactions contemplated thereby will be true, complete and
      accurate in every material respect, or (in the case of projections) based
      on reasonable estimates, on the date as of which such information is
      stated or certified.

                  (i) The Loan Originator is solvent, is able to pay its debts
      as they become due and has capital sufficient to carry on its business and
      its obligations under each Basic Document to which it is a party; it will
      not be rendered insolvent by the execution and delivery of this Agreement
      or by the performance of its obligations under each Basic Document to
      which it is a party; no petition of bankruptcy (or similar insolvency
      proceeding) has been filed by or against the Loan Originator prior to the
      date hereof;

                  (j) The Loan Originator has transferred the Loans transferred
      by it on or prior to such Transfer Date without any intent to hinder,
      delay or defraud any of its creditors;

                                       33
<PAGE>

                  (k) The Loan Originator has received fair consideration and
      reasonably equivalent value in exchange for the Loans sold by it on such
      Transfer Date;

                  (l) The Loan Originator has not dealt with any broker or agent
      or other Person who might be entitled to a fee, commission or compensation
      in connection with the transaction contemplated by this Agreement; and

                  (m) The Loan Originator's principal place of business and
      chief executive offices are located at Irvine, California.

            It is understood and agreed that the representations and warranties
set forth in this Section 3.02 shall survive delivery of the respective
Custodial Loan Files to the Custodian (as the agent of the Facility
Administrator) and shall inure to the benefit of the Securityholders, the
Depositor, the Servicer, the Facility Administrator, the Owner Trustee and the
Company. Upon discovery by the Loan Originator, the Depositor, the Servicer, the
Facility Administrator or the Trust of a breach of any of the foregoing
representations and warranties that materially and adversely affects the value
of any Loan or the interests of the Securityholders in any Loan or in the
Securities, the party discovering such breach shall give prompt written notice
(but in no event later than two Business Days following such discovery) to the
other parties. The obligations of the Loan Originator set forth in Sections 2.05
and 3.06 to cure any breach or to substitute for or repurchase an affected Loan
shall constitute the sole remedies available hereunder to the Securityholders,
the Depositor, the Servicer, the Facility Administrator or the Trust respecting
a breach of the representations and warranties contained in this Section 3.02,
but shall be cumulative with, and not exclusive of, any remedies provided in any
other Basic Document with respect to breaches of the Loan Originator's
representations and warranties set forth therein. The fact that the Note
Purchaser has conducted or has failed to conduct any partial or complete due
diligence investigation of the Loan Files shall not affect the Securityholders,
rights to demand repurchase or substitution as provided under this Agreement.

            Section 3.03. Representations, Warranties and Covenants of the
Servicer.

            The Servicer hereby represents and warrants to and covenants with
the other parties hereto and the Securityholders that as of the Closing Date, as
of each Transfer Date:

                  (a) The Servicer is a corporation duly organized, validly
      existing and in good standing under the laws of the State of California
      and (i) is duly qualified, in good standing and licensed to carry on its
      business in each state where any Mortgaged Property is located, and (ii)
      is in compliance with the laws of any such state, in both cases, to the
      extent necessary to ensure the enforceability of the Loans in accordance
      with the terms thereof and to perform its duties under each Basic Document
      to which it is a party and had at all relevant times, full corporate power
      to own its property, to carry on its business as currently conducted, to
      service the Loans and to enter into and perform its obligations under each
      Basic Document to which it is a party;

                                       34
<PAGE>

                  (b) The execution and delivery by the Servicer of each Basic
      Document to which it is a party and its performance of and compliance with
      the terms thereof will not violate the Servicer's articles of
      incorporation or by-laws or constitute a default (or an event which, with
      notice or lapse of time, or both, would constitute a default) under, or
      result in the breach or acceleration of, any material contract, agreement
      or other instrument to which the Servicer is a party or which are
      applicable to the Servicer or any of its assets;

                  (c) The Servicer has the full power and authority to enter
      into and consummate all transactions contemplated by each Basic Document
      to which it is a party, has duly authorized the execution, delivery and
      performance of each Basic Document to which it is a party and has duly
      executed and delivered each Basic Document to which it is a party. Each
      Basic Document to which it is a party, assuming due authorization,
      execution and delivery by each of the other parties thereto, constitutes a
      valid, legal and binding obligation of the Servicer, enforceable against
      it in accordance with the terms hereof, except as such enforcement may be
      limited by bankruptcy, insolvency, reorganization, receivership,
      moratorium or other similar laws relating to or affecting the rights of
      creditors generally, and by general equity principles (regardless of
      whether such enforcement is considered in a proceeding in equity or at
      law);

                  (d) The Servicer is not in violation of, and the execution and
      delivery of each Basic Document to which it is a party by the Servicer and
      its performance and compliance with the terms of each Basic Document to
      which it is a party will not constitute a violation with respect to, any
      order or decree of any court or any order or regulation of any federal,
      state, municipal or governmental agency having jurisdiction, which
      violation would materially and adversely affect the condition (financial
      or otherwise) or operations of the Servicer or materially and adversely
      affect the performance of its duties under any Basic Document to which it
      is a party;

                  (e) There are no actions or proceedings against, or
      investigations of, the Servicer currently pending with regard to which the
      Servicer has received service of process and no action or proceeding
      against, or investigation of, the Servicer is, to the knowledge of the
      Servicer, threatened or otherwise pending before any court, administrative
      agency or other tribunal that (A) if determined adversely to the Servicer,
      would reasonably be expected to prohibit its entering into any Basic
      Document to which it is a party, (B) seek to prevent the consummation of
      any of the transactions contemplated by any Basic Document to which it is
      a party or (C) if determined adversely to the Servicer, would reasonably
      be expected to prohibit or materially and adversely affect the performance
      by the Servicer of its obligations under, or the validity or
      enforceability of, any Basic Document to which it is a party or the
      Securities; provided, however, that with respect to the Servicer's
      obligations under Section 9.1(c) of the Note Purchase Agreement, there
      shall also be a reasonable possibility of an adverse determination of such
      action, proceeding or investigation;

                  (f) No consent, approval, authorization or order of any court
      or governmental agency or body is required for the execution, delivery and
      performance

                                       35
<PAGE>

      by the Servicer of, or compliance by the Servicer with, any Basic Document
      to which it is a party or the Securities, or for the consummation of the
      transactions contemplated by any Basic Document to which it is a party,
      except for such consents, approvals, authorizations and orders, if any,
      that have been obtained prior to such date;

                  (g) The information, reports, financial statements, exhibits
      and schedules furnished in writing by or on behalf of the Servicer to the
      Note Purchaser in connection with the negotiation, preparation or delivery
      of the Basic Documents to which it is a party or delivered pursuant
      thereto, when taken as a whole, do not contain any untrue statement of
      material fact or omit to state any material fact necessary to make the
      statements therein, in light of the circumstances under which they were
      made, not misleading. All written information furnished after the date
      hereof by or on behalf of the Servicer to the Note Purchaser in connection
      with the Basic Documents to which it is a party and the transactions
      contemplated thereby will be true, complete and accurate in every material
      respect, or (in the case of projections) based on reasonable estimates, on
      the date as of which such information is stated or certified.

                  (h) The Servicer is solvent and will not be rendered insolvent
      as a result of the performance of its obligations pursuant to under the
      Basic Documents to which it is a party;

                  (i) The Servicer acknowledges and agrees that the Servicing
      Fee represents reasonable compensation for the performance of its services
      hereunder and that the entire Servicing Fee shall be treated by the
      Servicer, for accounting purposes, as compensation for the servicing and
      administration of the Loans pursuant to this Agreement; and

                  (j) The Servicer is an Eligible Servicer and covenants to
      remain an Eligible Servicer or, if not an Eligible Servicer, each
      Subservicer is an Eligible Servicer and the Servicer covenants to cause
      each Subservicer to be an Eligible Servicer.

            It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Facility Administrator or the Custodian
on its behalf and shall inure to the benefit of the Depositor, the
Securityholders, the Facility Administrator and the Company. Upon discovery by
the Loan Originator, the Depositor, the Servicer, the Facility Administrator,
the Owner Trustee or the Company of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the value of any Loans or the interests of the Securityholders therein, the
party discovering such breach shall give prompt written notice (but in no event
later than two Business Days following such discovery) to the other parties. The
fact that the Note Purchaser has conducted or has failed to conduct any partial
or complete due diligence investigation shall not affect the Securityholders,
rights to exercise their remedies as provided under this Agreement.

                                       36
<PAGE>

            Section 3.04. Reserved.

            Section 3.05. Representations and Warranties Regarding Loans.

            The Loan Originator makes each of the representations and warranties
set forth on Exhibit E.

            Section 3.06. Purchase and Substitution.

            (a) It is understood and agreed that the representations and
warranties set forth in Exhibit E shall survive the conveyance of the Loans to
the Facility Administrator on behalf of the Company, and the delivery of the
Securities to the Securityholders. Upon discovery by the Depositor, the
Servicer, the Loan Originator, the Custodian, the Company, the Facility
Administrator or any Securityholder of a breach of any of such representations
and warranties or the representations and warranties of the Loan Originator set
forth in Section 3.02 which materially and adversely affects the value or
enforceability of any Loan or the interests of the Securityholders in any Loan
(notwithstanding that such representation and warranty was made to the Loan
Originator's best knowledge) or which, as a result of the attributes of the
aggregate Loan Pool, constitutes a breach of the representations and warranties
set forth in Exhibit E, the party discovering such breach shall give prompt
written notice to the others. The Loan Originator shall within 5 Business Days
of the earlier of the Loan Originator's discovery or the Loan Originator's
receiving notice of any breach of a representation or warranty, promptly cure
such breach in all material respects. If within 5 Business Days after the
earlier of the Loan Originator's discovery of such breach or the Loan
Originator's receiving notice thereof such breach has not been remedied by the
Loan Originator and such breach materially and adversely affects the interests
of the Securityholders in the related Loan (an "Unqualified Loan"), the Loan
Originator shall promptly upon receipt of written instructions from the Majority
Noteholders either (i) remove such Unqualified Loan from the Trust (in which
case it shall become a Deleted Loan) and substitute one or more Qualified
Substitute Loans in the manner and subject to the conditions set forth in this
Section 3.06 or (ii) purchase such Unqualified Loan at a purchase price equal to
the Repurchase Price with respect to such Unqualified Loan by depositing such
Repurchase Price in the Collection Account.

            Any substitution of Loans pursuant to this Section 3.06(a) shall be
accompanied by payment by the Loan Originator of the Substitution Adjustment, if
any, deposited in the Collection Account pursuant to Section 5.01(e).

            (b) As to any Deleted Loan for which the Loan Originator substitutes
a Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Facility Administrator and Note Purchaser a
certification executed by a Responsible Officer of the Loan Originator to the
effect that the Substitution Adjustment, if any, has been deposited in the
Collection Account as required hereby. As to any Deleted Loan for which the Loan
Originator substitutes a Qualified Substitute Loan or Loans, the Loan Originator
shall effect such substitution by delivering to the Custodian

                                       37
<PAGE>

the documents constituting the Custodial Loan File for such Qualified Substitute
Loan or Loans.

            The Servicer shall deposit in the Collection Account all payments
received in connection with each Qualified Substitute Loan after the date of
such substitution. Monthly Payments received with respect to Qualified
Substitute Loans on or before the date of substitution will be retained by the
Loan Originator. The Trust will be entitled to all payments received on the
Deleted Loan on or before the date of substitution and the Loan Originator shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Loan. The Loan Originator shall give written notice to the Company,
the Servicer (if the Loan Originator is not then acting as such), the Facility
Administrator and Note Purchaser that such substitution has taken place and the
Servicer shall amend the Loan Schedule to reflect (i) the removal of such
Deleted Loan from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan. The Servicer shall promptly deliver to the Company,
the Loan Originator, the Facility Administrator and Note Purchaser, a copy of
the amended Loan Schedule. Upon such substitution, such Qualified Substitute
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Loan Originator shall be deemed to have made with respect to such
Qualified Substitute Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Exhibit E. On the date of
such substitution, the Loan Originator will deposit into the Collection Account,
an amount equal to the related Substitution Adjustment, if any. In addition, on
the date of such substitution, the Servicer shall cause the Facility
Administrator to release the Deleted Loan from the lien of the Facility
Administrator and the Servicer will cause such Qualified Substitute Loan to be
pledged to the Facility Administrator under the Facility Administration
Agreement as part of the Collateral.

            (c) With respect to all Unqualified Loans or other Loans repurchased
by the Loan Originator pursuant to this Agreement, upon the deposit of the
Repurchase Price therefor into the Collection Account, (i) the Company shall
assign to the Loan Originator, without representation or warranty, all of the
Company's right, title and interest in and to such Unqualified Loan, which
right, title and interest were conveyed to the Company pursuant to Section 2.01
and (ii) the Facility Administrator shall assign to the Loan Originator, without
recourse, representation or warranty, all the Facility Administrator's right,
title and interest in and to such Unqualified Loans or Loans, which right, title
and interest were conveyed to the Facility Administrator pursuant to Section
2.01 and the Facility Administrator. The Company and the Facility Administrator
shall, at the expense of the Loan Originator, take any actions as shall be
reasonably requested by the Loan Originator to effect the repurchase of any such
Loans and to have the Custodian return the Custodial Loan File of the deleted
Loan to the Servicer.

            (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.06 to cure, purchase or substitute for a
Unqualified Loan constitute the sole remedies hereunder of the Depositor, the
Company, the Facility Administrator, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 and in Exhibit E. Any cause of action against the Loan Originator relating
to or arising out of a defect in a Custodial

                                       38
<PAGE>

Loan File or against the Loan Originator relating to or arising out of a breach
of any representations and warranties made in Sections 3.02 and in Exhibit E
shall accrue as to any Loan upon (i) discovery of such defect or breach by any
party and notice thereof to the Loan Originator or notice thereof by the Loan
Originator to the Facility Administrator, (ii) failure by the Loan Originator to
cure such defect or breach or purchase or substitute such Loan as specified
above, and (iii) demand upon the Loan Originator, as applicable, by the Company
or the Majority Noteholders for all amounts payable in respect of such Loan.

            (e) Neither the Company nor the Facility Administrator shall have
any duty to conduct any affirmative investigation other than as specifically set
forth in this Agreement as to the occurrence of any condition requiring the
repurchase or substitution of any Loan pursuant to this Section or the
eligibility of any Loan for purposes of this Agreement.

            Section 3.07. Dispositions.

            (a) (i) In consideration of the consideration received from the
      Depositor under the Loan Purchase and Contribution Agreement, the Loan
      Originator hereby agrees and covenants that in connection with each
      Disposition it shall effect the following:

            (A) make such representations and warranties concerning the Loans as
      of the "cut-off date" of the related Disposition to the Disposition
      Participants as may be necessary to effect the Disposition and such
      additional representations and warranties as may be necessary, in the
      reasonable opinion of any of the Disposition Participants, to effect such
      Disposition; provided, that the Loan Originator shall not be required to
      make any representation or warranty beyond the scope or substance of the
      representations and warranties delineated herein; and provided, further,
      that, to the extent that the Loan Originator has at the time of the
      Disposition actual knowledge of any facts or circumstances that would
      render any of such representations and warranties materially false, the
      Loan Originator may notify the Disposition Participants of such facts or
      circumstances and, in such event, shall have no obligation to make such
      materially false representation and warranty;

            (B) supply such information, opinions of counsel, letters from law
      and/or accounting firms and other documentation and certificates regarding
      the origination of the Loans as any Disposition Participant shall
      reasonably request to effect a Disposition and enter into such
      indemnification agreements customary for such transaction relating to or
      in connection with the Disposition as the Disposition Participants may
      reasonably require;

            (C) make itself available for and engage in good faith consultation
      with the Disposition Participants concerning information to be contained
      in any document, agreement, private placement memorandum, or filing with
      the Securities and Exchange Commission relating to the Loan Originator or
      the Loans

                                       39
<PAGE>

      in connection with a Disposition and shall use reasonable efforts to
      compile any information and prepare any reports and certificates, into a
      form, whether written or electronic, suitable for inclusion in such
      documentation;

            (D) to implement the foregoing and to otherwise effect a
      Disposition, enter into, or arrange for its Affiliates to enter into
      insurance and indemnity agreements, underwriting or placement agreements,
      servicing agreements, purchase agreements and any other documentation
      which may reasonably be required of or reasonably deemed appropriate by
      the Disposition Participants in order to effect a Disposition; and

            (E) take such further actions as may be reasonably necessary to
      effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan Originator
shall have no liability for the Loans arising from or relating to the ongoing
ability of the related Borrowers to pay under the Loans; (b) none of the
indemnities hereunder shall constitute an unconditional guarantee by the Loan
Originator of collectibility of the Loans; (c) the Loan Originator shall have no
obligation with respect to the financial inability of any Borrower to pay
principal, interest or other amount owing by such Borrower under a Loan; and (d)
the Loan Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that to the
extent an Affiliate of the Note Purchaser acts as "depositor" or performs a
similar function in a Securitization, additional indemnities and informational
representations and warranties are provided which are consistent with those in
the Basic Documents and may upon request of the Loan Originator be set forth in
a separate agreement between an Affiliate of the Note Purchaser and the Loan
Originator.

            (ii) In the event of any Disposition to the Loan Originator or any
of its Affiliates (except in connection with a Securitization or a Disposition
to an Affiliate which is a "qualified special purpose entity" in accordance with
Financial Accounting Standards Board's Statement No. 140), the purchase price
paid by the Loan Originator or any such Affiliate shall be the "fair market
value" of the Loans subject to such Disposition (as determined by the Market
Value Agent based upon recent sales of comparable loans or such other objective
criteria as may be approved for determining "fair market value" by a nationally
recognized accounting firm).

            (iii) Each Disposition shall be effected on a servicing-released or
servicing-retained basis, as the Note Purchaser shall direct, and, with respect
to servicing- retained Dispositions, shall be subject to any required amendments
to the related servicing provisions as may be necessary to effect the related
Disposition including but not limited to the obligation to make recoverable
principal and interest advances on the Loans.

            (a) The Company shall effect Dispositions at the direction of the
Majority Noteholders in accordance with the terms of this Agreement and the
Basic

                                       40
<PAGE>

Documents. The Trust, the Servicer, the Loan Originator and the Facility
Administrator agree to use commercially reasonable efforts, in connection with a
Disposition made in connection with the occurrence of the Optional Redemption
Date under (and as defined in) the Note Purchase Agreement, to permit the
Depositor to act as "depositor" in such Disposition; provided, nothing herein
shall be construed to require the Depositor to repurchase any Loans. In
connection therewith, the Trust agrees to assist the Loan Originator in such
Dispositions and accordingly it shall, at the request and direction of the
Majority Noteholders:

            (i) transfer, deliver and sell all or a portion of the Loans, as of
         the "cut-off dates" of the related Dispositions, to such Disposition
         Participants as may be necessary to effect the Dispositions; provided,
         that any such sale shall be for "fair market value," as determined by
         the Market Value Agent in its reasonable discretion;

            (ii)deposit the cash Disposition Proceeds into the Collection
         Account pursuant to Section 5.01(h);

            (iii) to the extent that a Securitization creates any Retained
         Securities, to accept and retain such Retained Securities as a part of
         the Disposition Proceeds in accordance with the terms of this
         Agreement; and

            (iv)take such further actions as may be reasonably necessary to
         effect such Dispositions.

                  (b) The Servicer hereby covenants that it will take such
      actions as may be reasonably necessary to effect Dispositions as the
      Disposition Participants may request and direct, including without
      limitation providing the Loan Originator such information as may be
      required to make representations and warranties required hereunder.

                  (c) The right to require the Company and the Loan Originator
      to effect Dispositions is subject to the conditions set forth in Section
      3.07(a).

                  (d) The Majority Noteholders may effect Whole Loan Sales upon
      written notice to the Servicer of its intent to cause the Company to
      effect a Whole Loan Sale at least 5 Business Days in advance thereof. The
      Loan Originator or its Affiliates may concurrently bid to purchase Loans
      in a Whole Loan Sale; provided, however, that neither the Loan Originator
      nor any such Affiliates shall pay a price in excess of the fair market
      value thereof as reasonably determined by the Market Value Agent.

                  (e) Except as otherwise expressly set forth under this Section
      3.07, the parties' rights and obligations under this Section 3.07 shall
      continue notwithstanding the occurrence of an Event of Default.

                  (f) The Disposition Participants (and the Majority Noteholders
      to the extent directing the Disposition Participants) shall be independent
      contractors to the

                                       41
<PAGE>

      Company and shall have no fiduciary obligations to the Company or any of
      its Affiliates. In that connection, the Disposition Participants shall not
      be liable for any error of judgment made in good faith and shall not be
      liable with respect to any action they take or omits to take in good faith
      in the performance of their duties.

            Section 3.08. Servicer Call.

            Servicer Call. The Servicer may repurchase any Put/Call Loan at any
time. Such Servicer Calls shall be solely at the option of the Servicer. Prior
to exercising a Servicer Call, the Servicer shall deliver written notice to the
Majority Noteholders and the Facility Administrator, which notice shall identify
each Loan to be purchased and the Repurchase Price therefor. In connection with
each Servicer Call, the Servicer shall deposit into the Collection Account the
Repurchase Price for the Loans to be purchased.

            Section 3.09. Modification of Underwriting Standards.

            The Loan Originator shall give the Note Purchaser prompt written
notification of any modification or change to the Underwriting Standards that
are material in nature; provided that if, within 15 Business Days after receipt
of a copy thereof, the Note Purchaser informs the Loan Originator that it
disapproves of one or more of such proposed modifications, "Underwriting
Standards" shall mean, for purposes of this Agreement and the other Basic
Documents, the Underwriting Standards previously in effect, modified only to the
extent of such modifications as have not been disapproved by the Note Purchaser
pursuant to this Section 3.09, unless the Note Purchaser consents in writing to
any modification or change to such Underwriting Standards. Notwithstanding
anything contained in this Agreement to the contrary, any Loan conveyed to the
Company pursuant to this Agreement pursuant to underwriting guidelines that
contain a modification or change to the Underwriting Standards that has been
disapproved by the Note Purchaser, or which the Note Purchaser did not receive
notice of (i.e., a Loan that could not have been originated in compliance with
the "Underwriting Standards," as defined in this Section 3.09), shall be deemed
an Unqualified Loan and be repurchased or substituted for in accordance with
Section 3.06.

                                   ARTICLE IV

                    ADMINISTRATION AND SERVICING OF THE LOANS

            Section 4.01. Servicer's Servicing Obligations.

            The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with the terms and provisions set forth in
the Servicing Addendum, which Servicing Addendum is incorporated herein by
reference. The Servicer shall timely deliver any reports and other information
necessary for the Facility Administrator to prepare reports the Facility
Administrator is required to prepare under the Basic Documents on the basis of
reports or other information to be provided by the Servicer.

                                       42
<PAGE>

                                   ARTICLE V

                         DEPOSITS TO COLLECTION ACCOUNT

            Section 5.01. Deposits to Collection Account. The Servicer shall
deposit or cause to be deposited (without duplication):

            (a) all payments on or in respect of each Loan collected on or after
      the related Transfer Cut-off Date (net of any Servicing Compensation
      retained therefrom) within two (2) Business Days after receipt thereof;

            (b) all Net Liquidation Proceeds within two (2) Business Days after
      receipt thereof;

            (c) all Mortgage Insurance Proceeds within two (2) Business Days
      after receipt thereof;

            (d) all Released Mortgaged Property Proceeds within two (2) Business
      Days after receipt thereof;

            (e) any amounts payable in connection with the repurchase of any
      Loan and the amount of any Substitution Adjustment pursuant to Sections
      2.05 and 3.06 concurrently with payment thereof;

            (f) any Repurchase Price payable in connection with a Servicer Call
      pursuant to Section 3.08 concurrently with payment thereof; and

            (g) all cash Disposition Proceeds of any Disposition, unless a
      Disposition Confirmation executed and delivered pursuant to the
      Disposition Agreement specifies that such cash Disposition Proceeds are to
      be deposited to an escrow account established pursuant to the Disposition
      Agreement.

            Section 5.02. Investment of Funds.

            Funds held in the Collection Account shall be invested in accordance
with the Facility Administration Agreement.

                                   ARTICLE VI

                                   VALUATIONS

            Section 6.01. Valuation of Loans and Retained Securities Value;
Market Value Agent.

                  (a) The Company hereby irrevocably appoints the Market Value
      Agent to determine the Market Value of each Loan and the Retained
      Securities Value of all Retained Securities, in accordance with
      subsections (b) and (c) below.

                                       43
<PAGE>

                  (b) The Market Value Agent shall determine the Market Value of
      each Loan in its sole discretion using its reasonable commercial judgment.
      In determining the Market Value of each Loan, the Market Value Agent may
      consider any information that it may deem relevant and shall base such
      determination primarily on the lesser of its estimate of the projected
      proceeds from such Loan's inclusion in (i) a Securitization (inclusive of
      the projected Retained Securities Value of any Retained Securities to be
      issued in connection with such Securitization) and (ii) a Whole Loan Sale,
      in each case net of such Loan's ratable share of all costs and fees
      associated with such Disposition, including, without limitation, any costs
      of issuance, sale, underwriting and funding reserve accounts. The Market
      Value Agent's determination, in its sole discretion using its reasonable
      commercial judgment, of Market Value shall be conclusive and binding upon
      the parties hereto, absent manifest error (including, without limitation,
      any error contemplated in Section 2.08).

                  (c) On each Business Day, the Market Value Agent shall
      determine in its sole discretion using its reasonable commercial judgment
      the Retained Securities Value of the Retained Securities, if any, expected
      to be issued pursuant to such Securitization as of the closing date of
      such Securitization. In making such determination the Market Value Agent
      may rely exclusively on quotations provided by leading dealers in
      instruments similar to such Retained Securities, which leading dealers may
      include the Market Value Agent and its Affiliates and such other sources
      of information as the Market Value Agent may deem appropriate.

                                  ARTICLE VII

                                  THE SERVICER

            Section 7.01. Indemnification; Third Party Claims.

                  (a) The Servicer shall indemnify the Loan Originator, the
      Owner Trustee, the Trust, the Depositor, the Facility Administrator and
      the Noteholders, their respective officers, directors, employees, agents
      and "control persons," as such term is used under the Act and under the
      Securities Exchange Act of 1934 as amended (each a "Servicer Indemnified
      Party") and hold harmless each of them against any and all claims, losses,
      damages, penalties, fines, forfeitures, reasonable legal fees and related
      costs, judgments, and other costs and expenses resulting from any claim,
      demand, defense or assertion based on or grounded upon, or resulting from,
      a breach of any of the Servicer's representations and warranties and
      covenants contained in this Agreement or in any way relating to the
      failure of the Servicer to perform its duties and service the Loans in
      compliance with the terms of this Agreement except to the extent such loss
      arises out of such Servicer Indemnified Party's gross negligence or
      willful misconduct; provided, however, that if the Servicer is not liable
      pursuant to the provisions of Section 7.01(b) for its failure to perform
      its duties and service the Loans in compliance with the terms of this
      Agreement, then the provisions of this Section 7.01 shall have no force
      and effect with respect to such failure.

                                       44
<PAGE>

                  (b) None of the Loan Originator, the Depositor or the Servicer
      or any of their respective Affiliates, directors, officers, employees or
      agents shall be under any liability to the Owner Trustee, the Company, the
      Facility Administrator or the Securityholders for any action taken, or for
      refraining from the taking of any action, in good faith pursuant to this
      Agreement, or for errors in judgment; provided, however, that this
      provision shall not protect the Loan Originator, the Depositor, the
      Servicer or any of their respective Affiliates, directors, officers,
      employees, agents against the remedies provided herein for the breach of
      any warranties, representations or covenants made herein, or against any
      expense or liability specifically required to be borne by such party
      without right of reimbursement pursuant to the terms hereof, or against
      any expense or liability which would otherwise be imposed by reason of
      misfeasance, bad faith or negligence in the performance of the respective
      duties of the Servicer, the Depositor or the Loan Originator, as the case
      may be. The Loan Originator, the Depositor, the Servicer and any of their
      respective Affiliates, directors, officers, employees, agents may rely in
      good faith on any document of any kind which, prima facie, is properly
      executed and submitted by any Person respecting any matters arising
      hereunder.

                  (c) The Loan Originator agrees to indemnify and hold harmless
      the Depositor and the Noteholders, as the ultimate assignees from the
      Depositor (each an "Originator Indemnified Party," together with the
      Servicer Indemnified Parties, the "Indemnified Parties"), from and against
      any loss, liability, expense, damage, claim or injury arising out of or
      based on (i) any breach of any representation, warranty or covenant of the
      Loan Originator, the Servicer or their Affiliates, in any Basic Document,
      including, without limitation, the origination or prior servicing of the
      Loans by reason of any acts, omissions, or alleged acts or omissions
      arising out of activities of the Loan Originator, the Servicer or their
      Affiliates, and (ii) any untrue statement by the Loan Originator, the
      Servicer or its Affiliates of any material fact or any such Person's
      failure to state a material fact necessary to make such statements not
      misleading with respect to any such Person's statements contained in any
      Basic Document, including, without limitation, any Officer's Certificate,
      statement, report or other document or information prepared by any such
      Person and furnished or to be furnished by it pursuant to or in connection
      with the transactions contemplated thereby and not corrected prior to
      completion of the relevant transaction, including, without limitation,
      such written information as may have been and may be furnished in
      connection with any due diligence investigation with respect to the Loans
      or any such Person's business, operations or financial condition,
      including reasonable attorneys' fees and other costs or expenses incurred
      in connection with the defense of any actual or threatened action,
      proceeding or claim; provided that the Loan Originator shall not indemnify
      an Originator Indemnified Party to the extent such loss, liability,
      expense, damage or injury is due to either an Originator Indemnified
      Party's willful misfeasance, bad faith or negligence or by reason of an
      Originator Indemnified Party's reckless disregard of its obligations
      hereunder; provided, further, that the Loan Originator shall not be so
      required to indemnify an Originator Indemnified Party or to otherwise be
      liable to an Originator Indemnified Party for any losses in respect of the
      performance of the Loans, the creditworthiness of the Borrowers under the
      Loans, changes in the market value of the Loans or other similar
      investment risks associated

                                       45
<PAGE>

      with the Loans arising from a breach of any representation or warranty set
      forth in Exhibit E, a remedy for the breach of which is provided in
      Section 3.06. The provisions of this indemnity shall run directly to and
      be enforceable by an Originator Indemnified Party subject to the
      limitations hereof.

                  (d) With respect to a claim subject to indemnity hereunder
      made by any Person against an Indemnified Party (a "Third Party Claim"),
      such Indemnified Party shall notify the related indemnifying parties (each
      an "Indemnifying Party") in writing of the Third Party Claim within a
      reasonable time after receipt by such Indemnified Party of written notice
      of the Third Party Claim unless the Indemnifying Parties shall have
      previously obtained actual knowledge thereof. Thereafter, the Indemnified
      Party shall deliver to the Indemnifying Parties, within a reasonable time
      after the Indemnified Party's receipt thereof, copies of all notices and
      documents (including court papers) received by the Indemnified Party
      relating to the Third Party Claim. No failure to give such notice or
      deliver such documents shall effect the rights to indemnity hereunder.
      Each Indemnifying Party shall promptly notify the Facility Administrator
      and the Indemnified Party (if other than the Facility Administrator) of
      any claim of which it has been notified and shall promptly notify the
      Facility Administrator and the Indemnified Party (if applicable) of its
      intended course of action with respect to any claim.

                  (e) If a Third Party Claim is made against an Indemnified
      Party: while maintaining control over its own defense, the Indemnified
      Party shall cooperate and consult fully with the Indemnifying Party in
      preparing such defense, and the Indemnified Party may defend the same in
      such manner as it may deem appropriate, including settling such claim or
      litigation after giving notice to the Indemnifying Party of such terms;
      and the Indemnifying Party will promptly reimburse the Indemnified Party
      upon written request.

            Section 7.02. Merger or Consolidation of the Servicer.

            The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

            Any Person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such
proposed merger, conversion, consolidation or succession to the Facility
Administrator and the Company.

                                       46
<PAGE>

            Section 7.03. Limitation on Liability of the Servicer and Others.

            The Servicer and any director, officer, employee or agent of the
Servicer may rely on any document of any kind which it in good faith reasonably
believes to be genuine and to have been adopted or signed by the proper
authorities respecting any matters arising hereunder. Subject to the terms of
Section 7.01, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.

            Section 7.04. Servicer Not to Resign; Assignment.

            The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Majority Noteholders or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Facility Administrator and Majority Noteholders. No resignation
of the Servicer shall become effective until a successor servicer, appointed
pursuant to the provisions of Section 8.02 shall have assumed the Servicer's
responsibilities, duties, liabilities (other than those liabilities arising
prior to the appointment of such successor) and obligations under this
Agreement.

            Except as expressly provided herein, the Servicer shall not assign
or transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.

            The Servicer agrees to cooperate with any successor Servicer in
effecting the transfer of the Servicer's servicing responsibilities and rights
hereunder pursuant to the first paragraph of this Section 7.04, including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Loan Files in the possession of the Servicer) and all
amounts received with respect to the Loans and not otherwise permitted to be
retained by the Servicer pursuant to this Agreement. In addition, the Servicer,
at its sole cost and expense, shall prepare, execute and deliver any and all
documents and instruments to the successor Servicer including all Loan Files in
its possession and do or accomplish all other acts necessary or appropriate to
effect such termination and transfer of servicing responsibilities.

            Section 7.05. Relationship of Servicer to Company, the Note
Purchaser and the Facility Administrator.

            The relationship of the Servicer (and of any successor to the
Servicer as servicer under this Agreement) to the Company, the Note Purchaser,
the Owner Trustee and the Facility Administrator under this Agreement is
intended by the parties hereto to

                                       47
<PAGE>

be that of an independent contractor and not of a joint venturer, agent or
partner of the Company, the Note Purchaser, the Owner Trustee or the Facility
Administrator.

            Section 7.06. Servicer May own Securities.

            Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is
a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder. Securities
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement unless the Servicer or such
Affiliate owns all outstanding Securities of the related class. The Servicer
shall notify the Facility Administrator promptly after it or any of its
Affiliates becomes the owner or pledgee of a Security.

            Section 7.07. Indemnification of the Facility Administrator and Note
Purchaser.

            The Servicer agrees to indemnify the Facility Administrator and its
employees, officers, directors and agents, and reimburse its reasonable
out-of-pocket expenses in accordance with Section 7 of the Facility
Administration Agreement as if it was a signatory thereto. The Servicer agrees
to indemnify the Custodian in accordance with Section 14 of the Custodial
Agreement. The Servicer agrees to indemnify the Note Purchaser in accordance
with Section 8.1 of the Note Purchase Agreement as if it were signatory thereto.

                                  ARTICLE VIII

                           SERVICER EVENTS OF DEFAULT

            Section 8.01. Servicer Events of Default.

                  (a) In case one or more of the following Servicer Events of
      Default by the Servicer shall occur and be continuing, that is to say:

            (i) any failure by Servicer to deposit into the Collection Account
         in accordance with Section 5.01(b) any amount required to be deposited
         by it under any Basic Document to which it is a party; or

            (ii)any failure on the part of the Servicer duly to observe or
         perform in any material respect any other of the material covenants or
         agreements on the part of the Servicer, contained in any Basic Document
         to which it is a party, which

                                       48
<PAGE>

      continues unremedied for a period of 30 days (or, in the case of payment
      of insurance premiums, for a period of 15 days) after the date on which
      written notice of such failure, requiring the same to be remedied, shall
      have been given to the Servicer by any other party hereto or to the
      Servicer (with copy to each other party hereto), by Holders of 25% of the
      Percentage Interests of the Secured Notes or the Trust Certificates; or

            (iii) any breach on the part of the Servicer of any representation
      or warranty contained in any Basic Document to which it is a party that
      materially and adversely affects the interests of any of the parties
      hereto or any Securityholder and which continues unremedied for a period
      of 30 days after the date on which notice of such breach, requiring the
      same to be remedied, shall have been given to the Servicer by any other
      party hereto or to the Servicer (with copy to each other party hereto), by
      the Note Purchaser or Holders of 25% of the Percentage Interests (as
      defined in the Facility Administration Agreement) of the Secured Notes; or

            (iv)there shall have been commenced before a court or agency or
      supervisory authority having jurisdiction in the premises an involuntary
      proceeding against the Servicer under any present or future federal or
      state bankruptcy, insolvency or similar law for the appointment of a
      conservator, receiver, liquidator, trustee or similar official in any
      bankruptcy, insolvency, readjustment of debt, marshaling of assets and
      liabilities or similar proceedings, or for the winding-up or liquidation
      of its affairs, which action shall not have been dismissed for a period of
      60 days; or

            (v) the Servicer shall consent to the appointment of a conservator,
      receiver, liquidator, trustee or similar official in any bankruptcy,
      insolvency, readjustment of debt, marshaling of assets and liabilities or
      similar proceedings of or relating to it or of or relating to all or
      substantially all of its property; or

            (vi) the Servicer fails to be an Eligible Servicer; or

            (vii) the Servicer ceases to be, directly or indirectly, a
      wholly-owned subsidiary of H&R Block Inc.; or

            (viii) the Servicer ceases to meet the qualifications of either a
      Fannie Mae or Freddie Mac servicer which status continues unremedied for a
      period of 30 days; a

            (ix)the Servicer shall admit in writing its inability to pay its
      debts generally as they become due, file a petition to take advantage of
      any applicable bankruptcy, insolvency or reorganization statute, make an
      assignment for the benefit of its creditors, voluntarily suspend payment
      of its obligations, or take any corporate action in furtherance of the
      foregoing.

                  (b) Then, and in each and every such case, so long as a
   Servicer Event of Default shall not have been remedied, the Facility
   Administrator or the Majority

                                       49
<PAGE>

      Noteholders, by notice in writing to the Servicer may, in addition to
      whatever rights such Person may have at law or in equity to damages,
      including injunctive relief and specific performance, may terminate all
      the rights and obligations of the Servicer under this Agreement and in and
      to the Loans and the proceeds thereof, as servicer under this Agreement.
      Upon receipt by the Servicer of such written notice, all authority and
      power of the Servicer under this Agreement, whether with respect to the
      Loans or otherwise, shall, subject to Section 8.02, pass to and be vested
      in a successor servicer, and the successor servicer is hereby authorized
      and empowered to execute and deliver, on behalf of the Servicer, as
      attorney-in-fact or otherwise, any and all documents and other instruments
      and do or cause to be done all other acts or things necessary or
      appropriate to effect the purposes of such notice of termination,
      including, but not limited to, the transfer and endorsement or assignment
      of the Loans and related documents. The Servicer agrees to cooperate with
      the successor servicer in effecting the termination of the Servicer's
      responsibilities and rights hereunder, including, without limitation, the
      transfer to the successor servicer for administration by it of all amounts
      which shall at the time be credited by the Servicer to each Collection
      Account or thereafter received with respect to the Loans.

                  (c) Upon the occurrence of an (i) Event of Default under any
      of the Basic Documents, (ii) a Servicer Event of Default under this
      Agreement, or (iii) a material adverse change in the business or financial
      conditions of the Servicer (each, a "Term Event"), the Servicer's right to
      service the Loans pursuant to the terms of this Agreement shall remain in
      effect for an initial period commencing on the date on which such Term
      Event occurred and shall automatically terminate at 5:00 p.m., New York
      City time, on the last Business Day of the calendar month in which such
      Term Event occurred (the "Initial Term"). Thereafter, the Initial Term
      shall be extendible in the sole discretion of the Note Purchaser by
      written notice (each, a "Servicer Extension Notice") of the Noteholder for
      successive one-month terms (each such term ending at 5:00 p.m., New York
      City time ("EST"), on the last business day of the related month).
      Following a Term Event, the Servicer hereby agrees that the Servicer shall
      be bound for the duration of the Initial Term and the term covered by any
      such Servicer Extension Notice to act as the Servicer pursuant to this
      Agreement and the Servicing Agreement. Following a Term Event, the
      Servicer agrees that if, as of 3:00 p.m. New York City time on the last
      business day of any month, the Servicer shall not have received a Servicer
      Extension Notice from the Note Purchaser, the Servicer shall give written
      notice of such non-receipt to the Note Purchaser by 4:00 p.m. New York
      City time. Following a Term Event, the failure of the Note Purchaser to
      deliver a Servicer Extension Notice by 5:00 p.m. New York City time shall
      result in the automatic and immediate termination of the Servicer (the
      "Termination Date"). Notwithstanding these time frames, the Servicer and
      the Note Purchaser shall comply with all applicable laws in connection
      with such transfer and the Servicer shall continue to service the Loans
      until completion of such transfer.

            Section 8.02. Appointment of Successor.

            On and after the date the Servicer receives a notice of termination
pursuant to Section 8.01 or is automatically terminated pursuant to Section
8.01(c), or the Owner

                                       50
<PAGE>

Trustee receives the resignation of the Servicer evidenced by an Opinion of
Counsel or accompanied by the consents required by Section 7.04, or the Servicer
is removed as servicer pursuant to this Article VIII or Section 4.01, then, the
Majority Noteholders shall appoint a successor servicer to be the successor in
all respects to the Servicer in its capacity as Servicer under this Agreement
and the transactions set forth or provided for herein and shall be subject to
all the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.

            The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 as if the Servicer had continued to act as
servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in section 4.15.
The Servicer shall not be entitled to any termination fee if it is terminated
pursuant to Section 8.01 but shall be entitled to any accrued and unpaid
Servicing Compensation to the date of termination.

            Any collections received by the Servicer after removal or
resignation shall be endorsed by it to the Facility Administrator and remitted
directly to the successor servicer for deposit into the Collection Account. The
compensation of any successor servicer appointed shall be the Servicing Fee,
together with other Servicing Compensation provided for herein. The Facility
Administrator, the Company, any Custodian, the Servicer and any such successor
servicer shall take such action, consistent with this Agreement, as shall be
reasonably necessary to effect any such succession. Any costs or expenses
incurred by the Facility Administrator in connection with the termination of the
Servicer and the succession of a successor servicer shall be an expense of the
outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Facility
Administrator and any successor servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the successor servicer all documents and records reasonably requested by
it to enable it to assume the Servicer's functions hereunder and shall promptly
also transfer to the successor servicer all amounts which then have been or
should have been deposited in any Trust Account maintained by the Servicer or
which are thereafter received with respect to the Loans. Upon the occurrence of
an Event of Default, the Majority Noteholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all documents relating to the Loans
which are then or may thereafter come into the possession of the Servicer or any
third party acting for the Servicer to be delivered to such custodian or
servicer as it selects and the Servicer shall deliver to such custodian or
servicer such assignments as the Majority Noteholders shall request. No
successor servicer shall be held liable by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivering, cash,
documents or records to it or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer hereunder. No appointment of a
successor to the Servicer hereunder shall be

                                       51
<PAGE>

effective until written notice of such proposed appointment shall have been
provided by the Note Purchaser to the Facility Administrator and the Depositor,
the Majority Noteholders and the Company shall have consented in writing
thereto.

            In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.

            Section 8.03. Waiver of Defaults.

            The Majority Noteholders may waive any events permitting removal of
the Servicer as servicer pursuant to this Article VIII. Upon any waiver of a
past default, such default shall cease to exist and any Servicer Event of
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived.

            Section 8.04. Accounting Upon Termination of Servicer.

            Upon termination of the Servicer under this Article VIII, the
Servicer shall, at its own expense:

                  (a) deliver to its successor the funds in any Trust Account
      maintained by the Servicer;

                  (b) deliver to its successor all Loan Files and related
      documents and statements held by it hereunder and a Loan portfolio
      computer tape;

                  (c) deliver to its successor, to the Facility Administrator
      and to the Company and the Securityholders a full accounting of all funds,
      including a statement showing the Monthly Payments collected by it and a
      statement of monies held in trust by it for payments or charges with
      respect to the Loans; and

                  (d) execute and deliver such instruments and perform all acts
      reasonably requested in order to effect the orderly and efficient transfer
      of servicing of the Loans to its successor and to more fully and
      definitively vest in such successor all rights, powers, duties,
      responsibilities, obligations and liabilities of the Servicer under this
      Agreement.

                                   ARTICLE IX

                                   TERMINATION

            Section 9.01. Termination.

                  (a) This Agreement shall terminate upon (i) the disposition of
      all funds with respect to the last Loan and the remittance of all funds
      due hereunder, and (ii) the payment of all amounts due and payable
      (including, without limitation,

                                       52
<PAGE>

      indemnification payments), pursuant to any Basic Document (including,
      without limitation, the Note Purchase Agreement and the Secured Notes), to
      the Facility Administrator, the Owner Trustee, the Company, the
      Noteholders, the Servicer and the Custodian, written notice of the
      occurrence of either of which shall be provided to the Facility
      Administrator by the Servicer; or (B) the mutual consent of the Servicer,
      the Depositor and all Securityholders in writing and delivered to the
      Facility Administrator by the Servicer.

                  (b) The Secured Notes shall be subject to an early redemption
      or termination at the option of the Majority Noteholders in the manner and
      subject to the provisions of the Note Purchase Agreement.

                  (c) Except as provided in this Section 9.01, none of the
      Depositor, the Servicer or any Noteholder shall be entitled to revoke or
      terminate the Trust.

            Section 9.02. Notice of Termination.

            Notice of termination of this Agreement or of early redemption and
termination of the Company pursuant to, or as described in, Section 9.01 shall
be sent by the Facility Administrator to the Noteholders in accordance with the
notice provisions of the Facility Administration Agreement.

                                   ARTICLE X

                            MISCELLANEOUS PROVISIONS

            Section 10.01. Amendment.

                  (a) This Agreement may be amended from time to time by the
      Depositor, the Servicer, the Loan Originator, the Facility Administrator
      and the Company by written agreement, with the prior written consent of
      the Majority Noteholders, for the purpose of adding any provisions to or
      changing in any manner or eliminating any of the provisions of this
      Agreement, or of modifying in any manner the rights of the
      Securityholders; provided, however, that no such amendment shall (i)
      reduce in any manner the amount of, or delay the timing of, collections of
      payments on Loans or distributions which are required to be made on any
      Security, without the consent of the holders of 100% of the Securities,
      (ii) adversely affect in any material respect the interests of any of the
      holders of the Securities in any manner other than as described in clause
      (i), without the consent of the holders of 51% of the Securities, or (iii)
      reduce the percentage of the Securities, the consent of which is required
      for any such amendment, without the consent of the holders of 100% of the
      Securities. The Facility Administrator shall have no responsibility for
      making any determination pursuant to the preceding sentence.

                  (b) It shall not be necessary for the consent of
      Securityholders under this Section to approve the particular form of any
      proposed amendment, but it shall be sufficient if such consent shall
      approve the substance thereof.

                                       53
<PAGE>

            Section 10.02. Recordation of Agreement.

            To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Property is situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the
Securityholders' expense on direction of the Majority Noteholders but only when
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Securityholders or is
necessary for the administration or servicing of the Loans.

            Section 10.03. Duration of Agreement.

            This Agreement shall continue in existence and effect until
terminated as herein provided.

            Section 10.04. Governing Law.

            THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. With respect to all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby, each party irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of New York and the United States District Court located in
the Borough of Manhattan, City of New York, and each party irrevocably waives
any objection which it may have at any time to the laying of venue of any suit,
action or proceeding arising out of or relating hereto brought in any such
court, irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in any inconvenient forum and further
irrevocably waives the right to object, with respect to such claim, suit, action
or proceeding brought in any such court, that such court does not have
jurisdiction over such party, provided that service of process is made by any
lawful means. Nothing in this Section 10.04 shall affect the right of any party
hereto or its assignees, or of the Note Purchaser or its assignees, to bring any
other action or proceeding against any party hereto or its property in the
courts of other jurisdictions.

                                       54
<PAGE>

            Section 10.05. Notices.

            All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if (i) delivered personally,
mailed by overnight mail, certified mail or registered mail, postage prepaid, or
(ii) transmitted by telecopy, upon telephone confirmation of receipt thereof
(with a copy delivered by overnight courier), as follows:

            If to the Depositor:

                           Option One Loan Warehouse Corporation
                           3 Ada
                           Irvine, CA 92618
                           Attention: Chief Financial Officer
                           Telephone: (949) 790-7504
                           Facsimile: (949) 790-7540
                           E-mail: bill.oneill@oomc.com

            with a copy to:

                           Option One Loan Warehouse Corporation
                           3 Ada
                           Irvine, CA 92618
                           Attention: Assistant Treasurer
                           Telephone: (949) 790-3600 ext. 32527
                           Facsimile: (949) 790-7514
                           E-mail: Jason.Forsyth@oomc.com

            If to the Company:

                           Option One Owner Trust 2002-3
                           c/o Wilmington Trust Company as Owner Trustee
                           One Rodney Square North
                           1100 North Market Street
                           Wilmington, DE 19890
                           Attention: Corporate Trust Administration
                           Telephone: (302) 636-4144
                           Facsimile: (302) 651-8882
                           Email:

            with a copy to:

                           the Servicer at its address set forth herein

                                       55
<PAGE>

            If to the Servicer:

                           Option One Mortgage Corporation
                           3 Ada
                           Irvine, CA 92618
                           Attention: Chief Financial Officer
                           Telephone: (949) 790-7504
                           Facsimile: (949) 790-7540
                           E-mail: bill.oneill@oomc.com

            If to the Loan Originator:

                           Option One Mortgage Corporation
                           3 Ada
                           Irvine, CA 92618
                           Attention: Chief Financial Officer
                           Telephone: (949) 790-7504
                           Facsimile: (949) 790-7540
                           E-mail:  bill.oneill@oomc.com

            If to the Facility Administrator:

                           Wells Fargo Bank, N.A.
                           9062 Old Annapolis Road
                           Columbia, Maryland 21045
                           Attention: Corporate Trust Services -
                                      Option One Owner Trust 2002-3
                           Telephone: (410) 884-2000
                           Facsimile: (410) 715-3714

or, in any such case, to such other addresses or telecopy or telephone numbers
as may hereafter be furnished to the Securityholders and the other parties
hereto in writing by such Person. Any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice or
telephone confirmation thereof by such party; provided that notices to the
Securityholders shall be effective upon mailing or personal delivery. Each party
hereto shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons

            Section 10.06. Severability of Provisions.

            If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be held invalid for any reason whatsoever, then such
covenants,

                                       56
<PAGE>

agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other covenants, agreements,
provisions or terms of this Agreement.

            Section 10.07. No Partnership.

            Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

            Section 10.08. Counterparts.

            This Agreement may be executed in one or more counterparts and by
the different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

            Section 10.09. Successors and Assigns.

            This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Facility Administrator, the
Company and the Securityholders and their respective successors and permitted
assigns.

            Section 10.10. Headings.

            The headings of the various Sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.

            Section 10.11. Actions of Securityholders.

                  (a) Any request, demand, authorization, direction, notice,
      consent, waiver or other action provided by this Agreement to be given or
      taken by Securityholders may be embodied in and evidenced by one or more
      instruments of substantially similar tenor signed by such Securityholders
      in person or by an agent duly appointed in writing; and except as herein
      otherwise expressly provided, such action shall become effective when such
      instrument or instruments are delivered to the Depositor, the Servicer or
      the Company. Proof of execution of any such instrument or of a writing
      appointing any such agent shall be sufficient for any purpose of this
      Agreement and conclusive in favor of the Depositor, the Servicer and the
      Company if made in the manner provided in this Section 10.11.

                  (b) The fact and date of the execution by any Securityholder
      of any such instrument or writing may be proved in any reasonable manner
      which the Depositor, the Servicer or the Company may deem sufficient.

                  (c) Any request, demand, authorization, direction, notice,
      consent, waiver or other act by a Securityholder shall bind every holder
      of every Security issued upon the registration of transfer thereof or in
      exchange therefor or in lieu

                                       57
<PAGE>

      thereof, in respect of anything done, or omitted to be done, by the
      Depositor, the Servicer or the Company in reliance thereon, whether or not
      notation of such action is made upon such Security.

                  (d) The Depositor, the Servicer or the Company may require
      additional proof of any matter referred to in this Section 10.11 as it
      shall deem necessary.

            Section 10.12. Non-Petition Agreement.

            Notwithstanding any prior termination of any Basic Document, the
Loan Originator, the Servicer, the Depositor and the Facility Administrator each
severally and not jointly covenants that it shall not, prior to the date which
is one year and one day after the payment in full of the all of the Secured
Notes, acquiesce, petition or otherwise, directly or indirectly, invoke or cause
the Trust or the Depositor to invoke the process of any governmental authority
for the purpose of commencing or sustaining a case against the Company or
Depositor 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 Company or Depositor or any substantial part of
their respective property or ordering the winding up or liquidation of the
affairs of the Company or the Depositor.

            Section 10.13. Holders of the Securities.

                  (a) Any sums to be distributed or otherwise paid hereunder or
      under this Agreement to the holders of the Securities shall be paid to
      such holders pro rata based on their Percentage Interests;

                  (b) Where any act or event hereunder is expressed to be
      subject to the consent or approval of the holders of the Securities,
      except where otherwise expressly provided, such consent or approval shall
      be capable of being given by the holder or holders evidencing in the
      aggregate not less than 51% of the Percentage Interests.

            Section 10.14. Due Diligence Fees, Due Diligence.

            The Loan Originator acknowledges that the Note Purchaser has the
right to perform continuing due diligence reviews with respect to the Loans, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Loan Originator agrees that
upon reasonable prior notice (with no notice being required upon the occurrence
of an Event of Default) to the Loan Originator, the Note Purchaser, the Facility
Administrator and Custodian or its authorized representatives will be permitted
during normal business hours to examine, inspect, and make copies and extracts
of, the Loan Files and any and all documents, records, agreements, instruments
or information relating to such Loans in the possession or under the control of
the Servicer and the Facility Administrator. The Loan Originator also shall make
available to the Note Purchaser a knowledgeable financial or accounting officer
for the purpose of answering questions respecting the Loan Files and the Loans.
Without limiting the generality of the foregoing, the Loan Originator
acknowledges that the Note Purchaser may purchase Notes based solely upon the
information provided by the Loan

                                       58
<PAGE>

Originator to the Note Purchaser in the Loan Schedule and the representations,
warranties and covenants contained herein, and that the Note Purchaser, at its
option, has the right at any time to conduct a partial or complete due diligence
review on some or all of the Loans securing such purchase, including, without
limitation, ordering new credit reports and new appraisals on the related
Mortgaged Properties and otherwise re-generating the information used to
originate such Loan. The Note Purchaser may underwrite such Loans itself or
engage a mutually agreed upon third party underwriter to perform such
underwriting. The Loan Originator agrees to cooperate with the Note Purchaser
and any third party underwriter in connection with such underwriting, including,
but not limited to, providing the Note Purchaser and any third party underwriter
with access to any and all documents, records, agreements, instruments or
information relating to such Loans in the possession, or under the control, of
the Servicer. The Loan Originator further agrees that the Loan Originator shall
reimburse the Note Purchaser for any and all reasonable out-of-pocket costs and
expenses incurred by the Note Purchaser in connection with the Note Purchaser's
activities pursuant to this Section 10.14 (the "Due Diligence Fees"); provided
that, unless an Event of Default shall occur, the aggregate reimbursement
obligation of the Loan Originator under this Agreement shall be limited to the
amount set forth in the Note Purchase Agreement. In addition to the obligations
set forth in Section 10.15, the Note Purchaser agrees (on behalf of itself and
its Affiliates, directors, officers, employees and representatives) to use
reasonable precaution to keep confidential, in accordance with its customary
procedures for handling confidential information and in accordance with safe and
sound practices, and not to disclose to any third party, any non-public
information supplied to it or otherwise obtained by it hereunder with respect to
the Loan Originator or any of its Affiliates (including, but not limited to, the
Loan File); provided, however, that nothing herein shall prohibit the disclosure
of any such information to the extent required by statute, rule, regulation or
judicial process; provided, further, that, unless specifically prohibited by
applicable law or court order, the Note Purchaser shall, prior to disclosure
thereof, notify the Loan Originator of any request for disclosure of any such
non-public information. The Note Purchaser further agrees not to use any such
non-public information for any purpose unrelated to this Agreement and that the
Note Purchaser shall not disclose such non-public information to any third party
underwriter in connection with a potential Disposition without obtaining a
written agreement from such third party underwriter to comply with the
confidentiality provisions of this Section 10.14.

            Section 10.15. Confidential Information.

            In addition to the confidentiality requirements set forth in Section
10.14 above, each Noteholder agrees to hold and treat all Confidential
Information (as defined below) in confidence and will not, without the prior
written consent of the Servicer and the Loan Originator, be disclosed or used by
such Noteholder or its subsidiaries, Affiliates, directors, officers, employees,
agents or controlling persons (collectively, the "Information Recipients") other
than for the purpose of making a decision to purchase or sell Notes or the
taking of any other permitted action under this Agreement and or any other Basic
Document. Each Noteholder agrees to disclose Confidential Information only to
its Information Recipients who need to know it for the purpose of making a
decision to purchase or sell Notes or the taking of any other permitted action
under this

                                       59
<PAGE>

Agreement and or any other Basic Document (including in connection with the
servicing of the Loans and in connection with any servicing transfers) and who
are informed by such Noteholder of its confidential nature and who agree to be
bound by the terms of this Section 10.15. Disclosure that is not in violation of
the Right to Financial Privacy Act or other applicable law by such Noteholder of
any Confidential Information at the request of its auditors, governmental
regulatory authorities or self-regulatory authorities in connection with an
examination of a Noteholder by any such authority shall not constitute a breach
of its obligations under this Section 10.15 and shall not require the prior
consent of the Servicer and the Loan Originator. Each Noteholder shall be
responsible for any breach of this Section 10.15 by its Information Recipients.
The Note Purchaser may use Confidential Information for internal due diligence
purposes in connection with its analysis of the transactions contemplated by the
Basic Documents. The Disposition Agent may disclose Confidential Information to
the Disposition Participants as required to effect Dispositions. This Section
10.15 shall terminate upon the occurrence of an Event of Default. As used
herein, "Confidential Information" means items (ii) and (iii) in the definition
of "Loan Schedule". Confidential information shall not include information which
(i) is or becomes generally available to the public other than as a result of a
disclosure by such Noteholder or any Information Recipients; (ii) was available
to such Noteholder on a non-confidential basis prior to its disclosure to such
Noteholder by the Servicer or the Loan Originator; (iii) is required to be
disclosed by a governmental authority or related governmental agencies,
auditors, accountants or as otherwise required by law; (iv) becomes available to
such Noteholder on a non-confidential basis from a person other than the
Servicer or the Loan Originator who, to the best knowledge of such Noteholder,
is not otherwise bound by a confidentiality agreement with the Servicer or the
Loan Originator or is not otherwise prohibited from transmitting the information
to each Noteholder.

            Section 10.16. No Recourse to Owner Trustee.

            It is expressly understood and agreed by the parties hereto that (a)
this Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2002-3, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Company is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Company, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Company or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Company under this Agreement or any other related
documents.

(SIGNATURE PAGE FOLLOWS)

                                       60
<PAGE>

            IN WITNESS WHEREOF, the Company, the Depositor, the Servicer, the
Facility Administrator and the Loan Originator have caused their names to be
signed by their respective officers thereunto duly authorized, as of the day and
year first above written, to this SALE AND SERVICING AGREEMENT.

                                    OPTION ONE OWNER TRUST 2002-3,

                                    BY: Wilmington Trust Company
                                        not in its individual capacity
                                        but solely as Owner Trustee

                                    BY: /s/ J. Oller
                                        -----------------------------------
                                        Name: Jeanne M. Oller
                                        Title: Senior Financial Services Officer

                                    OPTION ONE LOAN WAREHOUSE
                                           CORPORATION, as Depositor

                                    BY: /s/ C.R. Fulton
                                        -----------------------------------
                                        Name: Charles R. Fulton
                                        Title: Assistant Secretary

                                    OPTION ONE MORTGAGE CORPORATION,
                                           as Loan Originator and Servicer

                                    BY: /s/ C.R. Fulton
                                        -----------------------------------
                                        Name: Charles R. Fulton
                                        Title: Vice President

                                    WELLS FARGO BANK, N.A., as Facility
                                             Administrator

                                    BY: /s/ Reid Denny
                                        -----------------------------------
                                        Name: Reid Denny
                                        Title: Vice President

                                        61

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.48
<SEQUENCE>8
<FILENAME>c91685exv10w48.txt
<DESCRIPTION>SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.48

================================================================================

            SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT

                                      among

                         OPTION ONE OWNER TRUST 2001-1A

                                    as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION

                                  as Depositor

                                       and

                         OPTION ONE MORTGAGE CORPORATION
                         as Loan Originator and Servicer

                                       and

                             WELLS FARGO BANK, N.A.
                              as Indenture Trustee

                           Dated as of April 29, 2005

                         OPTION ONE OWNER TRUST 2001-1A
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                           Page
                                                                                                           ----
<S>                                                                                                        <C>
ARTICLE I       DEFINITIONS

     Section 1.01      Definitions......................................................................       1
     Section 1.02      Other Definitional Provisions....................................................      31

ARTICLE II      CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES

     Section 2.01      Conveyance of the Trust Estate; Additional Note Principal Balances...............      32
     Section 2.02      Ownership and Possession of Loan Files...........................................      34
     Section 2.03      Books and Records; Intention of the Parties......................................      34
     Section 2.04      Delivery of Loan Documents.......................................................      35
     Section 2.05      Acceptance by the Indenture Trustee of the Loans; Certain Substitutions
                       and Repurchases; Certification by the Custodian..................................      36
     Section 2.06      Conditions Precedent to Transfer Dates, Funding Dates and Collateral
                       Value Increase Dates.............................................................      38
     Section 2.07      Termination of Revolving Period..................................................      41
     Section 2.08      Correction of Errors.............................................................      41

ARTICLE III     REPRESENTATIONS AND WARRANTIES

     Section 3.01      Representations and Warranties of the Depositor..................................      42
     Section 3.02      Representations and Warranties of the Loan Originator............................      44
     Section 3.03      Representations, Warranties and Covenants of the Servicer........................      46
     Section 3.04      Reserved.........................................................................      49
     Section 3.05      Representations and Warranties Regarding Loans...................................      49
     Section 3.06      Purchase and Substitution........................................................      49
     Section 3.07      Dispositions.....................................................................      52
     Section 3.08      Servicer Put; Servicer Call......................................................      55
     Section 3.09      Modification of Underwriting Guidelines..........................................      55

ARTICLE IV      ADMINISTRATION AND SERVICING OF THE LOANS

     Section 4.01      Servicer's Servicing Obligations.................................................      55

ARTICLE V       ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

     Section 5.01      Collection Account and Distribution Account......................................      56
     Section 5.02      Payments to Securityholders......................................................      60
     Section 5.03      Trust Accounts; Trust Account Property...........................................      61
     Section 5.04      Advance Account..................................................................      63
     Section 5.05      Transfer Obligation Account......................................................      63
     Section 5.06      Transfer Obligation..............................................................      64

ARTICLE VI      STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

     Section 6.01      Statements.......................................................................      66
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                         <C>
     Section 6.02      Specification of Certain Tax Matters.............................................    68
     Section 6.03      Valuation of Loans and Residual Securities, Hedge Value and Retained
                       Securities Value; Market Value Agent.............................................    69

ARTICLE VII     HEDGING; FINANCIAL COVENANTS

     Section 7.01      Hedging Instruments..............................................................    70
     Section 7.02      Financial Covenants..............................................................    71

ARTICLE VIII    THE SERVICER

     Section 8.01      Indemnification; Third Party Claims..............................................    71
     Section 8.02      Merger or Consolidation of the Servicer..........................................    73
     Section 8.03      Limitation on Liability of the Servicer and Others...............................    74
     Section 8.04      Servicer Not to Resign;Assignment................................................    74
     Section 8.05      Relationship of Servicer to Issuer and the Indenture Trustee.....................    74
     Section 8.06      Servicer May Own Securities......................................................    75
     Section 8.07      Indemnification of the Indenture Trustee and Initial Noteholder..................    75

ARTICLE IX      SERVICER EVENTS OF DEFAULT

     Section 9.01      Servicer Events of Default.......................................................    75
     Section 9.02      Appointment of Successor.........................................................    77
     Section 9.03      Waiver of Defaults...............................................................    78
     Section 9.04      Accounting Upon Termination of Servicer..........................................    79

ARTICLE X       TERMINATION; PUT OPTION

     Section 10.01     Termination......................................................................    79
     Section 10.02     Optional Termination.............................................................    80
     Section 10.03     Notice of Termination............................................................    80
     Section 10.04     Put Option.......................................................................    80

ARTICLE XI      MISCELLANEOUS PROVISIONS

     Section 11.01     Acts of Securityholders..........................................................    81
     Section 11.02     Amendment........................................................................    81
     Section 11.03     Recordation of Agreement.........................................................    82
     Section 11.04     Duration of Agreement............................................................    82
     Section 11.05     Governing Law....................................................................    82
     Section 11.06     Notices..........................................................................    82
     Section 11.07     Severability of Provisions.......................................................    83
     Section 11.08     No Partnership...................................................................    83
     Section 11.09     Counterparts.....................................................................    83
     Section 11.10     Successors and Assigns...........................................................    83
     Section 11.11     Headings.........................................................................    83
     Section 11.12     Actions of Securityholders.......................................................    83
     Section 11.13     Non-Petition Agreement...........................................................    84
     Section 11.14     Holders of the Securities........................................................    84
     Section 11.15     Due Diligence Fees, Due Diligence................................................    84
     Section 11.16     No Reliance......................................................................    85
     Section 11.17     Confidential Information.........................................................    86
     Section 11.18     Conflicts........................................................................    87
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>                                                                                                        <C>
    Section 11.19     Limitation on Liability..........................................................    87
    Section 11.20     No Agency........................................................................    87
</TABLE>

                                      iii
<PAGE>

                          SALE AND SERVICING AGREEMENT

      This Second Amended and Restated Sale and Servicing Agreement is entered
into effective as of April 29, 2005, among OPTION ONE OWNER TRUST 2001-1A, a
Delaware business trust (the "Issuer" or the "Trust"), OPTION ONE LOAN WAREHOUSE
CORPORATION, a Delaware corporation, as Depositor (in such capacity, the
"Depositor"), OPTION ONE MORTGAGE CORPORATION, a California corporation ("Option
One"), as Loan Originator (in such capacity, the "Loan Originator") and as
Servicer (in such capacity, the "Servicer"), and WELLS FARGO BANK, N.A.
(formerly known as Wells Fargo Bank Minnesota, National Association), a national
banking association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the "Indenture Trustee").

                              W I T N E S S E T H:

      In consideration of the mutual agreements herein contained, the Issuer,
the Depositor, the Loan Originator, the Servicer and the Indenture Trustee
hereby agree as follows for the benefit of each of them and for the benefit of
the holders of the Securities:

                                   ARTICLE I

                                   DEFINITIONS

      Section 1.01 Definitions.

      Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

      2001-1B Sale and Servicing Agreement: The Sale and Servicing Agreement,
dated as of April 1, 2001, and as amended and restated through and including
April 16, 2004, among Option One Owner Trust 2001 -1B, the Depositor, Option One
and the Indenture Trustee.

      Accepted Servicing Practices: The Servicer's normal servicing practices in
servicing and administering similar mortgage loans for its own account, which in
general will conform to the mortgage servicing practices of prudent mortgage
lending institutions which service for their own account mortgage loans of the
same type as the Loans in the jurisdictions in which the related Mortgaged
Properties are located and will give due consideration to the Noteholders'
reliance on the Servicer.

      Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment Date,
the period commencing on and including the first Transfer Date (which first
Transfer Date is the first date on which the Note Principal Balance is greater
than zero)) and ending on the day preceding the related Payment Date.

      Act or Securities Act: The Securities Act of 1933, as amended.

                                       1
<PAGE>

      Additional Advance Rate: As defined in the Pricing Side Letter.

      Additional LIBOR Margin: As defined in the Pricing Side Letter.

      Additional Note Balance: As defined in the Advance Indenture.

      Additional Note Principal Balance: With respect to each (i) Transfer Date,
the aggregate Sales Prices of all Loans and Residual Securities conveyed on such
date and (ii) Funding Date, the amount of Additional Note Balance purchased by
the Issuer from the Advance Trust on such date.

      Adjustment Date: With respect to each ARM, the date set forth in the
related Promissory Note on which the Loan Interest Rate on such ARM is adjusted
in accordance with the terms of the related Promissory Note.

      Administration Agreement: The Administration Agreement, dated as of April
1, 2001, among the Issuer and the Administrator.

      Administrator: Option One Mortgage Corporation, in its capacity as
Administrator under the Administration Agreement.

      Advance Account: The account established and maintained pursuant to
Section 5.04.

      Advance Depositor: Option One Advance Corporation.

      Advance Documents: The "Transaction Documents" as defined in the Advance
Indenture.

      Advance Indenture: The Indenture, dated as of November 1, 2003, between
Option One Advance Trust 2003-ADV1, as issuer and Wells Fargo Bank Minnesota,
National Association, not in its individual capacity, but solely as indenture
trustee.

      Advance Note: Any of the Advance Trust's Advance Receivables Backed Notes,
Series 2003-ADV1, executed, authenticated and delivered under the Advance
Indenture.

      Advance Note Event of Default: An "Event of Default" as defined in the
Advance Indenture.

      Advance Note Purchase Agreement: The Note Purchase Agreement, dated as of
November 1, 2003, among the Advance Trust, Option One Owner Trust 2001-1A,
Option One Owner Trust 2001-1B, Option One Owner Trust 2001-2 and Greenwich
Capital Financial Products, Inc. as agent.

      Advance Trust: Option One Advance Trust 2003-ADV1.

      Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct

                                       2
<PAGE>

the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.

      Agreement: This Agreement, as the same may be amended and supplemented
from time to time.

      ALTA: The American Land Title Association and its successors in interest.

      Appraised Value: With respect to any Loan, and the related Mortgaged
Property, the lesser of:

                  (i) the lesser of (a) the value thereof as determined by an
appraisal made for the originator of the Loan at the time of origination of the
Loan by an appraiser who met the minimum requirements of Fannie Mae or Freddie
Mac or through an automated appraisal process consistent with the Underwriting
Guidelines, and (b) the value thereof as determined by a review appraisal
conducted by the Loan Originator in the event any such review appraisal
determines an appraised value more than 10% lower than the value thereof, in the
case of a Loan with a Loan-to-Value Ratio less than or equal to 80%, or more
than 5% lower than the value thereof, in the case of a Loan with a Loan-to-Value
Ratio greater than 80%, as determined by the appraisal referred to in clause
(i)(a) above; and

                  (ii) the purchase price paid for the related Mortgaged
Property by the Borrower with the proceeds of the Loan; provided, however, that
in the case of a refinanced Loan (which is a Loan the proceeds of which were not
used to purchase the related Mortgaged Property) or a Loan originated in
connection with a "lease option purchase" if the "lease option purchase price"
was set 12 months or more prior to origination, such value of the Mortgaged
Property is based solely upon clause (i) above.

                  (iii) ARM: Any Loan, the Loan Interest Rate with respect to
which is subject to adjustment during the life of such Loan.

      Assignment: With respect to the Loans, an LPA Assignment or S&SA
Assignment. With respect to the Residual Securities, an RSTA Assignment or S&SA
Assignment.

      Assignment of Mortgage: With respect to any Loan, an assignment of the
related Mortgage in blank or to Wells Fargo Bank, N.A., as custodian or trustee
under the applicable custodial agreement or trust agreement, and notice of
transfer or equivalent instrument in recordable form, sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to reflect
the assignment and pledge of such Mortgage.

      Balloon Loan: Any Loan for which the related monthly payments, other than
the monthly payment due on the maturity date stated in the Promissory Note, are
computed on the basis of a period to full amortization ending on a date that is
later than such maturity date.

      Basic Documents: This Agreement, the Administration Agreement, the
Custodial Agreement, the Indenture, the Loan Purchase and Contribution
Agreement, the Master Disposition Confirmation Agreement, the Note Purchase
Agreement, the Guaranty, the Advance

                                       3
<PAGE>

Note Purchase Agreement, the Trust Agreement, the Residual Securities Transfer
Agreement, each Hedging Instrument and, as and when required to be executed and
delivered, the Assignments.

      Bill of Sale: With respect to any Funding Date, a bill of sale,
substantially in the form attached as Exhibit C to the Receivables Purchase
Agreement, delivered by Option One and the Depositor to the Issuer, the Agent
and the Indenture Trustee pursuant to the Receivables Purchase Agreement.

      Block: Block Financial Corporation, A Delaware corporation, and any
successor thereto.

      Borrower: The obligor or obligors on a Promissory Note.

      Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which the New York Stock Exchange, the Federal Reserve Bank of New York or
banking institutions in New York City, California, Maryland, Minnesota,
Pennsylvania, Delaware or in the city in which the corporate trust office of the
Indenture Trustee is located or the city in which the Servicer's servicing
operations are located are authorized or obligated by law or executive order to
be closed, or (iii) a day on which trading in securities on the New York Stock
Exchange or any other major securities exchange in the United States is not
conducted.

      Certificateholder: A holder of a Trust Certificate.

      Change of Control: As defined in the Indenture.

      Clean-up Call Date: The first Payment Date occurring after the end of the
Revolving Period and the date on which the Note Principal Balance declines to
10% or less of the aggregate Note Principal Balance as of the end of the
Revolving Period.

      Closing Date: April 18, 2001.

      Code: The Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated by the United States Treasury thereunder.

      Collateral Percentage: As defined in the Pricing Side Letter.

      Collateral Value: As defined in the Pricing Side Letter.

      Collateral Value Increase Date: any date following the related Transfer
Date that the Collateral Value of specified Mortgage Loans shall be 102%
pursuant to clause (III)(a)(2)(A) of the definition of Collateral Value.

      Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.

      Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio of
the outstanding Principal Balance on the related date of origination of (a) (i)
such Loan plus (ii) the loan constituting the first lien to the lesser of (b)
(x) the Appraised Value of the Mortgaged

                                       4
<PAGE>

Property at origination or (y) if the Mortgaged Property was purchased within 12
months of the origination of the Loan, the purchase price of the Mortgaged
Property, expressed as a percentage.

      Commission: The Securities and Exchange Commission.

      Convertible Loan: A Loan that by its terms and subject to certain
conditions contained in the related Mortgage or Promissory Note allows the
Borrower to convert the adjustable Loan Interest Rate on such Loan to a fixed
Loan Interest Rate.

      Credit Score: With respect to each Borrower, the credit score for such
Borrower from a nationally recognized credit repository; provided, however, in
the event that a credit score for such Borrower was obtained from two
repositories, the "Credit Score" shall be the lower of the two scores; provided,
further, in the event that a credit score for such Borrower was obtained from
three repositories, the "Credit Score" shall be the middle score of the three
scores.

      Custodial Agreement: The custodial agreement dated as of April 1, 2001,
among the Issuer, the Servicer, the Indenture Trustee and the Custodian,
providing for the retention of the Custodial Loan Files by the Custodian on
behalf of the Indenture Trustee.

      Custodial Loan File: As defined in the Custodial Agreement.

      Custodian: The custodian named in the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Loan Originator, the Depositor or
any Subservicer. Wells Fargo Bank, N.A., a national banking association, shall
be the initial Custodian pursuant to the terms of the Custodial Agreement.
Custodian Fee: For any Payment Date, the fee payable to the Custodian on such
Payment Date as set forth in the Custodian Fee Notice for such Payment Date,
which fee shall be calculated in accordance with the separate fee letter between
the Custodian and the Servicer.

      Custodian Fee Notice: For any Payment Date, the written notice provided by
the Custodian to the Servicer and the Indenture Trustee pursuant to Section
6.01, which notice shall specify the amount of the Custodian Fee payable on such
Payment Date.

      Daily Interest Accrual Amount: With respect to each day and the related
Accrual Period, the sum of (i) interest accrued at the Note Interest Rate with
respect to such Accrual Period on the Note Principal Balance as of the preceding
Business Day minus the principal balance of the Advance Note and the portion of
the Note Principal Balance related to the Residual Securities as of the
preceding Business Day after giving effect to all changes to the Note Principal
Balance, the principal amount of the Advance Note and the portion of the Note
Principal Balance related to the Residual Securities on or prior to such
preceding Business Day and (ii) interest accrued at the Additional Advance Rate
plus the Additional LIBOR Margin on the portion of the Note Principal Balance
equal to the outstanding principal balance of the Advance Note and the portion
of the Note Principal Balance related to the Residual Securities as of the
preceding Business Day after giving effect to all changes to the principal
amount of the Advance Note and the portion of the Note Principal Balance related
to the Residual Securities on or prior to such Business Day.

                                       5
<PAGE>

      Deemed Cured: With respect to the occurrence of a Performance Trigger or
Rapid Amortization Trigger, when the condition that originally gave rise to the
occurrence of such trigger has not continued for 20 consecutive days, or if the
occurrence of such Performance Trigger or Rapid Amortization Trigger has been
waived in writing by the Majority Noteholder.

      Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.

      Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan with respect to which any of
the following has occurred as of the end of the related Remittance Period: (a)
foreclosure or similar proceedings have been commenced; or (b) the Servicer or
any Subservicer has determined in good faith and in accordance with the
servicing standard set forth in Section 4.01 of the Servicing Addendum that such
Loan is in default or imminent default.

      Deleted Loan: A Loan replaced or to be replaced by one or more Qualified
Substitute Loans.

      Deleted Residual Security: A Residual Security replaced or to be replaced
by one or more Qualified Substitute Residual Securities.

      Delinquent: A Loan is "Delinquent" if any Monthly Payment due thereon is
not made by the close of business on the day such Monthly Payment is required to
be paid. A Loan is "30 days Delinquent" if any Monthly Payment due thereon has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such Monthly Payment was required to
be paid or, if there is no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was required to be paid on the 31st
day of such month), then on the last day of such immediately succeeding month.
The determination of whether a Loan is "60 days Delinquent," "90 days
Delinquent", etc., shall be made in like manner.

      Delivery: When used with respect to Trust Account Property means:

            (a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
susceptible of physical delivery (except with respect to Trust Account Property
consisting of certificated securities (as defined in Section 8-102(a)(4) of the
UCC)), physical delivery to the Indenture Trustee or its custodian (or the
related Securities Intermediary) endorsed to the Indenture Trustee or its
custodian (or the related Securities Intermediary) or endorsed in blank (and if
delivered and endorsed to the Securities Intermediary, by continuous credit
thereof by book-entry to the related Trust Account);

            (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the Indenture
Trustee or endorsed in blank to its custodian or the related Securities
Intermediary and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to
the related Trust Account, or (ii) by delivery thereof to a "clearing
corporation" (as defined in Section 8-102(5) of the UCC) and the making by such
clearing corporation of

                                       6
<PAGE>

appropriate entries in its records crediting the securities account of the
related Securities Intermediary by the amount of such certificated security and
the making by such Securities Intermediary of appropriate entries in its records
identifying such certificated securities as credited to the related Trust
Account (all of the Trust Account Property described in Subsections (a) and (b),
"Physical Property");

            and, in any event, any such Physical Property in registered form
shall be in the name of the Indenture Trustee or its nominee or custodian (or
the related Securities Intermediary); and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof;

            (c) with respect to any security issued by the U.S. Treasury, Fannie
Mae or Freddie Mac that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable federal
regulations and Articles 8 and 9 of the UCC: the making by a Federal Reserve
Bank of an appropriate entry crediting such Trust Account Property to an account
of the related Securities Intermediary or the securities intermediary that is
(x) also a "participant" pursuant to applicable federal regulations and (y) is
acting as securities intermediary on behalf of the Securities Intermediary with
respect to such Trust Account Property; the making by such Securities
Intermediary or securities intermediary of appropriate entries in its records
crediting such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations and Articles 8 and 9 of the UCC to
the related Trust Account; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of any
such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and

            (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and that
is not governed by clause (c) above, registration in the records of the issuer
thereof in the name of the related Securities Intermediary, and the making by
such Securities Intermediary of appropriate entries in its records crediting
such uncertificated security to the related Trust Account.

      Designated Depository Institution: With respect to an Eligible Account, an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the long-term deposits of which shall be
rated A or better by S&P or A2 or better by Moody's and the short-term deposits
of which shall be rated P-1 or better by Moody's and A-1 or better by S&P,
unless otherwise approved in writing by the Initial Noteholder and which is any
of the following: (A) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (B) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (C) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(D) a principal subsidiary of a bank holding company or (E) approved in writing
by the Initial Noteholder and, in each case acting or designated by the Servicer
as the

                                       7
<PAGE>

depository institution for the Eligible Account; provided, however, that any
such institution or association shall have combined capital, surplus and
undivided profits of at least $50,000,000.

      Depositor: Option One Loan Warehouse Corporation, a Delaware corporation,
and any successors thereto.

      Determination Date: With respect to any Payment Date occurring on the 10th
day of a month, the last calendar day of the month immediately preceding the
month of such Payment Date, and with respect to any other Payment Date, as
mutually agreed by the Servicer and the Noteholders.

      Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans or Residual Securities.

      Disposition Agent: Greenwich Capital Markets, Inc. and its successors and
assigns acting at the direction, and as agent, of the Majority Noteholders.

      Disposition Participant: As applicable, with respect to a Disposition, any
"depositor" with respect to such Disposition, the Disposition Agent, the
Majority Noteholders, the Issuer, the Servicer, the related trustee and the
related custodian, any nationally recognized credit rating agency, the related
underwriters, the related placement agent, the related credit enhancer, the
related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.

      Disposition Proceeds: With respect to a Disposition, (x) the proceeds of
the Disposition remitted to the Trust in respect of the Loans or Residual
Securities transferred on the date of and with respect to such Disposition,
including without limitation, any cash and Retained Securities created in any
related Securitization less all costs, fees and expenses incurred in connection
with such Disposition, including, without limitation, all amounts deposited into
any reserve accounts upon the closing thereof plus or minus (y) the net positive
or net negative value of all Hedging Instruments terminated in connection with
such Disposition minus (z) all other amounts agreed upon in writing by the
Initial Noteholder, the Trust and the Servicer.

      Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(2) hereof.

      Due Date: The day of the month on which the Monthly Payment is due from
the Borrower with respect to a Loan.

      Due Diligence Fees: Shall have the meaning provided in Section 11.15
hereof.

      Eligible Account: At any time, an account which is: (i) maintained with a
Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a
trust account (which shall be a "segregated trust account") maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or trust company

                                       8
<PAGE>

shall have capital and surplus of not less than $50,000,000; or (iv) with the
prior written consent of the Majority Noteholders, any other account.

      Eligible Servicer: (x) Option One or (y) any other Person that (a) (i) has
been designated as an approved seller-servicer by Fannie Mae or Freddie Mac for
first and second mortgage loans and (ii) has equity of not less than
$15,000,000, as determined in accordance with GAAP or (b) any other Person to
which the Majority Noteholders may consent in writing.

      Escrow Payments: With respect to any Loan, the amounts constituting ground
rents, taxes, assessments, water rates, sewer rents, municipal charges, fire,
hazard, liability and other insurance premiums, condominium charges, and any
other payments required to be escrowed by the related Borrower with the lender
or servicer pursuant to the Mortgage or any other document.

      Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.

      Exceptions Report: The meaning set forth in the Custodial Agreement.

      Exchange Act: The Securities Exchange Act of 1934, as amended.

      Fannie Mae: The Federal National Mortgage Association and any successor
thereto.

      FDIC: The Federal Deposit Insurance Corporation and any successor thereto.

      Fidelity Bond: As described in Section 4.10 of the Servicing Addendum.

      Final Put Date: The Put Date following the end of the Revolving Period on
which the Majority Noteholders exercise the Put Option with respect to the
entire outstanding Note Principal Balance.

      Final Recovery Determination: With respect to any defaulted Loan or any
Foreclosure Property, a determination made by the Servicer that all Mortgage
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

      Financial Covenants: With respect to Option One, the following financial
covenants:

      (a) Option One must maintain a minimum "Tangible Net Worth" (defined and
determined in accordance with GAAP and exclusive of (i) any loans outstanding to
any officer or director of Option One or its Affiliates (ii) any intangibles
(other than originated or purchased servicing rights) and (iii) any receivables
from Block) of $425 million as of any day.

      (b) Option One must maintain a ratio of 1.0 or greater at any time
pursuant to the Capital Adequacy Test, attached as Exhibit I hereto.

                                       9
<PAGE>

      (c) Option One may not exceed a maximum non-warehouse leverage ratio (the
ratio of (i) the sum of (A) all funded debt (excluding debt from Block or any of
its Affiliates and all non-recourse debt) less (B) 91% of its mortgage loan
inventory held for sale less (C) 90% of servicing advance receivables
(determined and valued in accordance with GAAP) to (ii) Tangible Net Worth) of
0.50x at any time. Any direct or indirect debt provided by Block will be subject
to the Subordination Agreement; or, if Block does not enter into the
Subordination Agreement, the maximum permitted non-warehousing leverage ratio
including debt from Block will be 1.0x at any time, provided, that no more than
0.5x of such non-warehouse leverage ratio can be funded by entities not
affiliated with Option One or Block.

      (d) Option One must maintain a minimum liquidity facility (defined as a
committed, unsecured, non-amortizing liquidity facility from Block not to mature
(scheduled or accelerated) prior to the Maturity Date) in an amount no less than
$150 million. Such facility from Block cannot contain covenants or termination
events more restrictive than the covenants or termination events contained in
the Basic Documents.

      (e) Option One must maintain a minimum "Net Income" (defined and
determined in accordance with GAAP) of at least $1 based on the total of the
current quarter combined with the previous three quarters.

      First Lien Loan: A Loan secured by the lien on the related Mortgaged
Property, subject to no prior liens on such Mortgaged Property.

      Foreclosed Loan: As of any Determination Date, any Loan that as of the end
of the preceding Remittance Period has been discharged as a result of (i) the
completion of foreclosure or comparable proceedings by the Servicer on behalf of
the Issuer; (ii) the acceptance of the deed or other evidence of title to the
related Mortgaged Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition of title to the related Mortgaged Property
by operation of law.

      Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer on behalf of the Issuer through foreclosure,
deed in lieu of foreclosure or similar proceedings in respect of the related
Loan.

      Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.

      Funding Account: As defined in the Advance Indenture.

      Funding Date: With respect to the Advance Note, the day on which
Additional Note Balance is purchased by the Issuer under the Advance Note
Purchase Agreement.

      Funding Notice: As defined in the Advance Indenture.

      GAAP: Generally Accepted Accounting Principles as in effect in the United
States.

      Gross Margin: With respect to each ARM, the fixed percentage amount set
forth in the related Promissory Note.

                                       10
<PAGE>

      Guaranty: The Guaranty made by H&R Block, Inc. in favor of the Indenture
Trustee and the Noteholders.

      Hedge Funding Requirement: With respect to any day, all amounts required
to be paid or delivered by the Issuer under any Hedging Instrument, whether in
respect of payments thereunder or in order to meet margin, collateral or other
requirements thereof. Such amounts shall be calculated by the Market Value Agent
and the Indenture Trustee shall be notified of such amount by the Market Value
Agent.

      Hedge Value: With respect to any Business Day and a specific Hedging
Instrument, the positive amount, if any, that is equal to the amount that would
be paid to the Issuer in consideration of an agreement between the Issuer and an
unaffiliated third party, that would have the effect of preserving for the
Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument
until the termination thereof, as determined by the Market Value Agent in
accordance with Section 6.03 hereof.

      Hedging Counterparty: A Person (i) (A) the long-term and commercial paper
or short-term deposit ratings of which are acceptable to the Majority
Noteholders and (B) which shall agree in writing that, in the event that any of
its long-term or commercial paper or short-term deposit ratings cease to be at
or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the request of the Majority
Noteholders, (ii) that has entered into a Hedging Instrument and (iii) that is
acceptable to the Majority Noteholders.

      Hedging Instrument: Any interest rate cap agreement, interest rate floor
agreement, interest rate swap agreement or other interest rate hedging agreement
entered into by the Issuer with a Hedging Counterparty, and which requires the
Hedging Counterparty to deposit all amounts payable thereby directly to the
Collection Account. Each Hedging Instrument shall meet the requirements set
forth in Article VII hereof with respect thereto.

      Indenture: The Indenture dated as of April 1, 2001, and as amended and
restated through and including April 29, 2005, between the Issuer and the
Indenture Trustee, as the same may be further amended from time to time.

      Indenture Trustee: Wells Fargo Bank, N.A., a national banking association,
as Indenture Trustee under the Indenture, or any successor indenture trustee
under the Indenture.

      Indenture Trustee Fee: An annual fee of $5,000 payable by the Servicer in
accordance with a separate fee agreement between the Indenture Trustee and the
Servicer and Section 5.01 hereof.

      Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates, (ii) does not have any direct financial
interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or

                                       11
<PAGE>

Person performing similar functions; provided, however, that a Person shall not
fail to be Independent of the Loan Originator, the Depositor, the Servicer or
any of their respective Affiliates merely because such Person is the beneficial
owner of 1% or less of any class of securities issued by the Loan Originator,
the Depositor, the Servicer or any of their respective Affiliates, as the case
may be.

      Independent Accountants: A firm of nationally recognized certified public
accountants which is independent according to the provisions of SEC Regulation
S-X, Article 2.

      Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.

      Initial Noteholder: Greenwich Capital Financial Products, Inc. or an
Affiliate thereof identified in writing by Greenwich Capital Financial Products,
Inc. to the Indenture Trustee and the other parties hereto.

      Interest Carry-Forward Amount: With respect to any Payment Date, the
excess, if any, of (A) the Interest Payment Amount for such Payment Date plus
the Interest Carry-Forward Amount for the prior Payment Date over (B) the amount
in respect of interest that is actually paid from the Distribution Account on
such Payment Date in respect of the interest for such Payment Date.

      Interest Payment Amount: With respect to any Payment Date, the sum of the
Daily Interest Accrual Amounts for all days in the related Accrual Period.

      LIBOR Business Day: Any day on which banks in the City of London are open
and conducting transactions in United States dollars.

      LIBOR Determination Date: With respect to each Accrual Period, the second
LIBOR Business Day preceding the commencement of such Accrual Period.

      LIBOR Margin: As defined in the Pricing Side Letter.

      Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge,
security interest, hypothecation, option or encumbrance of any kind in respect
of such asset or (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.

      Lifetime Cap: The provision in the Promissory Note for each ARM which
limits the maximum Loan Interest Rate over the life of such ARM.

      Lifetime Floor: The provision in the Promissory Note for each ARM which
limits the minimum Loan Interest Rate over the life of such ARM.

      Liquidated Loan: As defined in Section 4.03(c) of the Servicing Addendum.

                                       12
<PAGE>

      Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds allocable
to principal received on or prior to such date.

      Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts
received in connection with the liquidation of such Liquidated Loan, whether
through trustee's sale, foreclosure sale or other disposition, any cash amounts
received in connection with the management of the Mortgaged Property from
Defaulted Loans, any proceeds from Primary Insurance Policies and any other
amounts required to be deposited in the Collection Account pursuant to Section
5.01(b)(1) hereof, in each case other than Mortgage Insurance Proceeds and
Released Mortgaged Property Proceeds. Liquidation Proceeds shall also include
any awards or settlements in respect of the related Mortgage Property, whether
permanent or temporary, partial or entire, by exercise of the power of eminent
domain or condemnation.

      Loan: Any loan sold to the Trust hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) a Promissory Note or Lost
Note Affidavit and related Mortgage and (ii) all right, title and interest of
the Loan Originator in and to the Mortgaged Property covered by such Mortgage.
The term Loan shall be deemed to include the related Promissory Note or Lost
Note Affidavit, related Mortgage and related Foreclosure Property, if any.

      Loan Documents: With respect to a Loan, the documents comprising the
Custodial Loan File for such Loan or with respect to a Residual Security, the
related pooling and servicing agreement or indenture, the physical Residual
Security unless such Residual Security is held in book-entry form and any
transferor letters, transferee letters, assignments or bond powers required
under the related pooling and servicing agreement, the related indenture or
applicable law to transfer such Residual Security.

      Loan File: With respect to each Loan, the Custodial Loan File and the
Servicer's Loan File.

      Loan Interest Rate: With respect to each Loan, the annual rate of interest
borne by the related Promissory Note, as shown on the Loan Schedule, and, in the
case of an ARM, as the same may be periodically adjusted in accordance with the
terms of such Loan.

      Loan Originator: Option One and its permitted successors and assigns.

      Loan Pool: As of any date of determination, the pool of all Loans conveyed
to the Issuer pursuant to this Agreement on all Transfer Dates up to and
including such date of determination, which Loans have not been released from
the Lien of the Indenture pursuant to the terms of the Basic Documents, together
with the rights and obligations of a holder thereof, and the payments thereon
and proceeds therefrom received on and after the applicable Transfer Cut-off
Date, as identified from time to time on the Loan Schedule.

      Loan Purchase and Contribution Agreement: The Loan Purchase and
Contribution Agreement, between Option One, as seller and the Depositor, as
purchaser, dated as of April 1, 2001, and all supplements and amendments
thereto.

                                       13
<PAGE>

      Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing
Date and on each Transfer Date and delivered to the Initial Noteholder and the
Custodian in the form of a computer-readable transmission specifying the
information set forth on Exhibit D hereto and, with respect to Wet Funded Loans,
Exhibit C to the Custodial Agreement.

      Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the ratio
of the original outstanding principal amount of such Loan to the Appraised Value
of the Mortgaged Property at origination.

      Lost Note Affidavit: With respect to any Loan as to which the original
Promissory Note has been permanently lost or destroyed and has not been
replaced, an affidavit from the Loan Originator certifying that the original
Promissory Note has been lost, misplaced or destroyed (together with a copy of
the related Promissory Note and indemnifying the Issuer against any loss, cost
or liability resulting from the failure to deliver the original Promissory Note)
in the form of Exhibit L attached to the Custodial Agreement.

      LPA Assignment: The assignment of Loans from Option One to the Depositor
under the Loan Purchase and Contribution Agreement.

      Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

      Majority Noteholders: The holder or holders of in excess of 50% of the
Note Principal Balance. In the event of the release of the Lien of the Indenture
in accordance with the terms thereof, the Majority Noteholders shall mean the
Majority Certificateholders.

      Market Value: The market value of a Loan or Residual Security as of any
Business Day as determined by the Market Value Agent in accordance with Section
6.03 hereof.

      Market Value Agent: Greenwich Capital Financial Products, Inc. or an
Affiliate thereof designated by Greenwich Capital Financial Products, Inc. in
writing to the parties hereto and, in either case, its successors in
interest

      Master Disposition Confirmation Agreement: The Master Disposition
Confirmation Agreement, dated as of April 1, 2001, by and among Option One, the
Depositor, Option One Owner Trust 2001-1A, Option One Owner Trust 2001-1B,
Option One Owner Trust 2001-2, Wells Fargo Bank Minnesota, National Association,
Bank of America, N.A., Greenwich Capital Financial Products, Inc., and Steamboat
Funding Corporation.

      Maturity Date: With respect to the Notes, as set forth in the Indenture or
such later date as may be agreed in writing by the Majority Noteholders.

      Maximum Note Principal Balance: As defined in Section 1.01 of the Note
Purchase Agreement.

      Monthly Advance: The aggregate of the advances made by the Servicer on any
Remittance Date pursuant to Section 4.14 of the Servicing Addendum.

                                       14
<PAGE>

      Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Borrower on the related Loan, as set forth in
the related Promissory Note.

      Monthly Remittance Amount: With respect to each Remittance Date, the sum,
without duplication, of (i) the aggregate payments on the Loans collected by the
Servicer pursuant to Section 5.01(b)(1)(i) during the immediately preceding
Remittance Period and (ii) the aggregate of amounts deposited into the
Collection Account pursuant to Section 5.01(b)(1)(ii) through 5.01(b)(1)(xi)
during the immediately preceding Remittance Period.

      Moody's: Moody's Investors Service, Inc., or any successor thereto.

      Mortgage: With respect to any Loan, the mortgage, deed of trust or other
instrument securing the related Promissory Note, which creates a first or second
lien on the fee in real property and/or a first or second lien on the leasehold
in real property securing the Promissory Note and the assignment of rents and
leases related thereto.

      Mortgage Insurance Policies: With respect to any Mortgaged Property or
Loan, the insurance policies required pursuant to Section 4.08 of the Servicing
Addendum.

      Mortgage Insurance Proceeds: With respect to any Mortgaged Property, all
amounts collected in respect of Mortgage Insurance Policies and not required
either pursuant to applicable law or the related Loan Documents to be applied to
the restoration of the related Mortgaged Property or paid to the related
Borrower.

      Mortgaged Property: With respect to a Loan, the related Borrower's fee
and/or leasehold interest in the real property (and/or all improvements,
buildings, fixtures, building equipment and personal property thereon (to the
extent applicable) and all additions, alterations and replacements made at any
time with respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by the related Promissory Note.

      Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the prior Remittance Period, net of any reimbursements
to the Servicer made from such amounts for any unreimbursed Servicing
Compensation and Servicing Advances (including Nonrecoverable Servicing
Advances) made and any other fees and expenses paid in connection with the
foreclosure, inspection, conservation and liquidation of the related Liquidated
Loans or Foreclosure Properties pursuant to Section 4.03 of the Servicing
Addendum.

      Net Loan Losses: With respect to any Defaulted Loan that is subject to a
modification pursuant to Section 4.01 of the Servicing Addendum, an amount equal
to the portion of the Principal Balance, if any, released in connection with
such modification.

      Net Worth: With respect to any Person, the excess of total assets of such
Person, over total liabilities of such Person, determined in accordance with
GAAP.

      Nonrecoverable Monthly Advance: Any Monthly Advance previously made or
proposed to be made with respect to a Loan or Foreclosure Property that, in the
good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, will
not, or, in the case of a proposed Monthly Advance,

                                       15
<PAGE>

would not be, ultimately recoverable from the related late payments, Mortgage
Insurance Proceeds, Liquidation Proceeds or condemnation proceeds on such Loan
or Foreclosure Property as provided herein.

      Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Liquidation Proceeds,
Mortgage Insurance Proceeds or the Released Mortgaged Property Proceeds on the
related Loan or Foreclosure Property or (b) a Servicing Advance proposed to be
made in respect of a Loan or Foreclosure Property either of which, in the good
faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, would
not be ultimately recoverable.

      Nonutilization Fee: As defined in the Pricing Side Letter.

      Note: The meaning assigned thereto in the Indenture.

      Noteholder: The meaning assigned thereto in the Indenture.

      Note Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin and the Additional LIBOR Margin for such Accrual Period.

      Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased on
or prior to such date pursuant to the Note Purchase Agreement less (b) all
amounts previously distributed in respect of principal of the Notes on or prior
to such day.

      Note Purchase Agreement: The Note Purchase Agreement, dated as of April
18, 2001, and as amended and restated through and including April 29, 2005,
among the Initial Noteholder, the Issuer and the Depositor, as The same may be
amended from time to time.

      Note Redemption Amount: As of any Determination Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date,
(iii) any Servicing Advance Reimbursement Amount as of such Determination Date
and (iv) all amounts due to Hedging Counterparties in respect of the termination
of all related Hedging Instruments.

      Officer's Certificate: A certificate signed by a Responsible Officer of
the Depositor, the Loan Originator, the Servicer or the Issuer, in each case, as
required by this Agreement.

      One-Month LIBOR: With respect to each Accrual Period, the rate determined
by the Initial Noteholder on the related LIBOR Determination Date on the basis
of the offered rate for one-month U.S. dollar deposits, as such rate appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination
Date; provided that if such rate does not appear on Telerate Page 3750, the rate
for such date will be determined on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London
time) on such LIBOR Determination Date. In such event, the Initial Noteholder
will request the principal

                                       16
<PAGE>

London office of each of the Reference Banks to provide a quotation of its rate.
If on such LIBOR Determination Date, two or more Reference Banks provide such
offered quotations, One-Month LIBOR for the related Accrual Period shall be the
arithmetic mean of all such offered quotations (rounded to the nearest whole
multiple of 1/16%). If on such LIBOR Determination Date, fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the Accrual
Period shall be the higher of (i) LIBOR as determined on the previous LIBOR
Determination Date and (ii) the Reserve Interest Rate. Notwithstanding the
foregoing, if, under the priorities described above, One-Month LIBOR for a LIBOR
Determination Date would be based on One-Month LIBOR for the previous LIBOR
Determination Date for the third consecutive LIBOR Determination Date, the
Initial Noteholder shall select an alternative comparable index (over which the
Initial Noteholder has no control), used for determining one-month Eurodollar
lending rates that is calculated and published (or otherwise made available) by
an independent party.

      Opinion of Counsel: A written opinion of counsel who may be employed by
the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

      Option One: Option One Mortgage Corporation, a California corporation.

      Overcollateralization Shortfall: As defined in the Pricing Side Letter.

      Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.

      Owner Trustee Fee: The annual fee of $4,000 payable in equal monthly
installments to the Servicer pursuant to Section 5.01(c)(3)(i) which shall in
turn pay such amount annually to the Owner Trustee on the anniversary of the
Closing Date occurring each year during the term of this Agreement.

      Paying Agent: The meaning assigned thereto in the Indenture.

      Payment Date: Each of, (i) the 10th day of each calendar month commencing
on the first such 10th day to occur after the first Transfer Date, or if any
such day is not a Business Day, the first Business Day immediately following
such day, (ii) any day a Loan or Residual Security is sold pursuant to the terms
hereof, (iii) a Put Date as specified by the Majority Noteholder pursuant to
Section 10.05 of the Indenture, and (iv) an additional Payment Date pursuant to
Section 5.01(c)(4)(i) and 5.01(c)(4)(iii). From time to time, the Majority
Noteholders and the Issuer may agree, upon written notice to the Owner Trustee
and the Indenture Trustee, to additional Payment Dates in accordance with
Section 5.01(c)(4)(ii).

      Payment Statement: As defined in Section 6.01(b) hereof.

      Percentage Interest: As defined in the Trust Agreement.

      Performance Trigger: Shall exist, as of any Determination Date, if the
aggregate Principal Balance of all Loans that are not Scratch & Dent Loans and
that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date

                                       17
<PAGE>

divided by the Pool Principal Balance as of such Determination Date is greater
than 2%, provided, however, that a Performance Trigger shall not occur if such
percentage is reduced to less than 2% within 5 Business Days of such
Determination Date as the result of the exercise of a Servicer Call. A
Performance Trigger shall continue to exist until Deemed Cured.

      Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note, which
is the maximum annual percentage by which the Loan Interest Rate for such Loan
may increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on
such Rate Change Date from the Loan Interest Rate in effect immediately prior to
such Rate Change Date.

      Permitted Investments: Each of the following:

            (e) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.

            (f) Federal Housing Administration debentures rated Aa2 or higher by
Moody's and AA or better by S&P.

            (g) Freddie Mac senior debt obligations rated Aa2 or higher by
Moody's and AA or better by S&P.

            (h) Federal Home Loan Banks' consolidated senior debt obligations
rated Aa2 or higher by Moody's and AA or better by S&P.

            (i) Fannie Mae senior debt obligations rated Aa2 or higher by
Moody's.

            (j) Federal funds, certificates or deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 or better by Moody's.

            (k) Investment agreements approved by the Initial Noteholder
provided:

                  (1) The agreement is with a bank or insurance company which
has an unsecured, uninsured and unguaranteed obligation (or claims-paying
ability) rated Aa2 or better by Moody's and AA or better by S&P, and

                  (2) Monies invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice (provided such
notice may be amended or canceled at any time prior to the withdrawal date), and

                  (3) The agreement is not subordinated to any other obligations
of such insurance company or bank, and

                                       18
<PAGE>

                  (4) The same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement, and

                  (5) The Indenture Trustee and the Initial Noteholder receive
an opinion of counsel that such agreement is an enforceable obligation of such
insurance company or bank.

            (l) Commercial paper (having original maturities of not more than
365 days) rated A-1 or better by S&P and P-1 or better by Moody's.

            (m) Investments in money market funds rated AAAM or AAAM-G by S&P
and Aaa or P-1 by Moody's.

            (n) Investments approved in writing by the Initial Noteholder;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

      Each reference in this definition to the Rating Agency shall be construed,
as a reference to each of S&P and Moody's.

      Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.

      Physical Property: As defined in clause (b) of the definition of
"Delivery" above.

      Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of such Determination Date.

      Prepaid Installment: With respect to any Loan, any installment of
principal thereof and interest thereon received prior to the scheduled Due Date
for such installment, intended by the Borrower as an early payment thereof and
not as a Prepayment with respect to such Loan.

      Prepayment: Any payment of principal of a Loan which is received by the
Servicer in advance of the scheduled due date for the payment of such principal
(other than the principal portion of any Prepaid Installment), and the proceeds
of any Mortgage Insurance Policy which are to be applied as a payment of
principal on the related Loan shall be deemed to be Prepayments for all purposes
of this Agreement.

                                       19
<PAGE>

      Preservation Expenses: Expenditures made by the Servicer in connection
with a foreclosed Loan prior to the liquidation thereof, including, without
limitation, expenditures for real estate property taxes, hazard insurance
premiums, property restoration or preservation.

      Pricing Side Letter: The pricing letter of even date herewith, signed by
the parties hereto.

      Primary Insurance Policy: A policy of primary mortgage guaranty insurance
issued by a Qualified Insurer pursuant to Section 4.06 of the Servicing
Addendum.

      Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other date of determination, the
outstanding unpaid principal balance of the Loan as of the end of the preceding
Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan
prior to the end of such Remittance Period); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero. With
respect to any Residual Security, (i) at the Transfer Cut-off Date the Transfer
Cut-off Date Principal Balance and (ii) with respect to any other date of
determination, the outstanding unpaid principal balance of the Residual Security
as of such date.

      Proceeding: Means any suit in equity, action at law or other judicial or
administrative proceeding.

      Promissory Note: With respect to a Loan, the original executed promissory
note or other evidence of the indebtedness of the related Borrower or Borrowers.

      Put/Call Loan: Any (i) non-Scratch & Dent Loan that has become 30 or more
days (but less than 60 days) Delinquent, (ii) non-Scratch & Dent Loan that has
become 60 or more days (but less than 90 days) Delinquent, (iii) non-Scratch &
Dent Loan that has become 90 or more days Delinquent, (iv) non-Scratch & Dent
Loan that is a Defaulted Loan, (v) non-Scratch & Dent Loan that has been in
default for a period of 30 days or more (other than a Loan referred to in clause
(i), (ii), (iii) or (iv) hereof), (vi) non-Scratch & Dent Loan that does not
meet criteria established by independent rating agencies or surety agency
conditions for Dispositions which criteria have been established at the related
Transfer Date and may be modified only to match changed criteria of independent
rating agencies or surety agents, or (vii) non-Scratch & Dent Loan that is
inconsistent with the intended tax status of a Securitization.

      Put Date: Any date on which all or a portion of the Notes are to be
purchased by the Issuer as a result of the exercise of the Put Option.

      Put Option: The right of the Majority Noteholders to require the Issuer to
repurchase all or a portion of the Notes in accordance with Section 10.04 of the
Indenture.

      QSPE Affiliate: Option One Owner Trust 2001-1B, Option One Owner Trust
2001-2, Option One Owner Trust 2002-3, Option One Owner Trust 2003-4. Option One
Owner Trust 2003-5 or any other Affiliate which is a "qualified special purpose
entity" in accordance with Financial Accounting Standards Board's Statement No.
140 or 125.

                                       20
<PAGE>

      Qualified Insurer: An insurance company duly qualified as such under the
laws of the states in which the Mortgaged Property is located, duly authorized
and licensed in such states to transact the applicable insurance business and to
write the insurance provided and that meets the requirements of Fannie Mae and
Freddie Mac.

      Qualified Substitute Loan: A Loan or Loans substituted for a Deleted Loan
pursuant to Section 3.06 hereof, which (i) has or have been approved in writing
by the Majority Noteholders and (ii) complies or comply as of the date of
substitution with each representation and warranty set forth in Exhibit E and is
or are not 30 or more days Delinquent as of the date of substitution for such
Deleted Loan or Loans.

      Qualified Substitute Residual Security: A Residual Security or Residual
Securities substituted for a Deleted Residual Security pursuant to Section 3.06
hereof, which has or have been approved in writing by the Majority Noteholders.

      Rapid Amortization Trigger: Shall exist, as of any Determination Date, if
the aggregate Principal Balance of all Loans that are not Scratch & Dent Loans
and that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 3%; provided, however,
that a Rapid Amortization Trigger shall not occur if such percentage is reduced
to less than 3% within 5 Business Days of such Determination Date as a result of
the exercise of a Servicer Call. A Rapid Amortization Trigger shall continue to
exist until it is Deemed Cured.

      Rate Change Date: The date on which the Loan Interest Rate of each ARM is
subject to adjustment in accordance with the related Promissory Note.

      Rating Agencies: S&P and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.

      Receivables Purchase Agreement: The Receivables Purchase Agreement, dated
as of November 1, 2003, among Option One, the Advance Depositor and the Advance
Trust.

      Receivables Seller: Option One.

      Record Date: With respect to each Payment Date, the close of business of
the immediately preceding Business Day.

      Reference Banks: Deutsche Bank National Trust Company, Barclay's Bank PLC,
The Tokyo Mitsubishi Bank and National Westminster Bank PLC and their successors
in interest; provided, however, that if the Initial Noteholder determines that
any of the foregoing banks are not suitable to serve as a Reference Bank, then
any leading banks selected by the Initial Noteholder with the approval of the
Issuer, which approval shall not be unreasonably withheld, which are engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London and (ii) which have been
designated as such by the Initial Noteholder with the approval of the Issuer,
which approval shall not be unreasonably withheld.

                                       21
<PAGE>

      Refinanced Loan: A Loan the proceeds of which were not used to purchase
the related Mortgaged Property.

      Released Mortgaged Property Proceeds: With respect to any Loan, proceeds
received by the Servicer in connection with (i) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (ii) any
release of part of the Mortgaged Property from the lien of the related Mortgage,
whether by partial condemnation, sale or otherwise; which proceeds in either
case are not released to the Borrower in accordance with applicable law and/or
Accepted Servicing Practices.

      Remittance Date: The Business Day immediately preceding each Payment Date.

      Remittance Period: With respect to any Payment Date, the period commencing
immediately following the Determination Date for the preceding Payment Date (or,
in the case of the initial Payment Date, commencing immediately following the
initial Transfer Cut-off Date) and ending on and including the related
Determination Date.

      Repurchase Price: With respect to a Loan the sum of (i) the Principal
Balance thereof as of the date of purchase or repurchase, plus (ii) all accrued
and unpaid interest on such Loan to the date of purchase or repurchase computed
at the applicable Loan Interest Rate, plus (iii) the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Loan (after
deducting therefrom any amounts received in respect of such purchased or
repurchased Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase). The
Repurchase Price shall be (i) increased by the net negative value or (ii)
decreased by the net positive value of all Hedging Instruments terminated with
respect to the purchase of such Loan. To the extent the Servicer does not
reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such
Loan, the Repurchase Price shall be reduced by such amounts. With respect to a
Residual Security the sum of (i) the Principal Balance thereof as of the date of
purchase or repurchase, plus (ii) all accrued and unpaid interest on such
Residual Security to the date of purchase or repurchase computed at the
applicable Residual Security Interest Rate.

      Residual Security: Any security sold to the Trust hereunder and pledged to
the Indenture Trustee, which security must be (i) a mortgage-backed security
issued by Option One Mortgage Acceptance Corp. and evidencing an interest in a
securitization trust backed by residential mortgage loans, which mortgage loans
are serviced by Option One (including, without limitation, securities designated
as class C certificates and class P certificates that meet the foregoing
criteria) or (ii) net interest margin security issued by a trust sponsored by
Option One and backed by class C certificates and/or class P certificates, which
certificates are in turn backed by residential mortgage loans serviced by Option
One.

      Residual Securities Interest Rate: With respect to each Residual Security,
the annual rate of interest borne by such Residual Security.

                                       22
<PAGE>

      Residual Securities Pool: As of any date of determination, the pool of all
Residual Securities conveyed to the Issuer pursuant to this Agreement on all
Transfer Dates up to and including such date of determination, which Residual
Securities have not been released from the Lien of the Indenture pursuant to the
terms of the Basic Documents, together with the rights and obligations of a
holder thereof, and the payments thereon and proceeds therefrom received on and
after the applicable Transfer Cut-off Date, as identified from time to time on
the Residual Securities Schedule.

      Residual Securities Schedule: The schedule of Residual Securities conveyed
to the Issuer on the Closing Date and on each Transfer Date and delivered to the
Initial Noteholder in the form of a computer-readable transmission specifying
the information set forth on Exhibit G hereto.

      Residual Securities Transfer Agreement: The Residual Securities Transfer
Agreement dated as of April 16, 2004, between the Loan Originator and the
Depositor, as the same may be further amended or supplemented from time to time.

      Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Initial Noteholder determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Initial Noteholder are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or (ii)
in the event that the Initial Noteholder can determine no such arithmetic mean,
the lowest one-month U.S. dollar lending rate which New York City banks selected
by the Initial Noteholder are quoting on such LIBOR Determination Date to
leading European banks.

      Responsible Officer: When used with respect to the Indenture Trustee or
Custodian, any officer within the corporate trust office of such Person,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer or any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Administrator to the Owner Trustee on the date hereof (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Vice President or more senior officer
of the Administrator who is authorized to act for the Administrator in matters
relating to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Responsible
Officers delivered by the Administrator to the Owner Trustee on the date hereof
(as such list may be modified or supplemented from time to time thereafter).
When used with respect to the Depositor, the Loan Originator or the Servicer,
the President, any Vice President, or the Treasurer.

      Retained Securities: With respect to a Securitization, any subordinated
securities issued or expected to be issued, or excess collateral value retained
or expected to be retained, in

                                       23
<PAGE>

connection therewith to the extent the Depositor, the Loan Originator or an
Affiliate thereof retains, instead of sell, such securities.

      Retained Securities Value: With respect to any Business Day and a Retained
Security, the market value thereof as determined by the Market Value Agent in
accordance with Section 6.03(d) hereof.

      Revolving Period: With respect to the Notes, the period commencing on
April 29, 2005 and ending on the earlier of (i) April 28, 2006 and (ii) the date
on which the Revolving Period is terminated pursuant to Section 2.07.

      RSTA Assignment: The assignment of Residual Securities from Option One to
the Depositor under the Residual Securities Transfer Agreement.

      Sales Price: With respect to each Loan and each Residual Security and any
Transfer Date, the sum of the Collateral Values with respect to such Loan or
such Residual Security conveyed on such Transfer Date as of such Transfer Date.

      S&SA Assignment: An assignment, in the form of Exhibit C hereto, of Loans
or Residual Securities and other property from the Depositor to the Issuer
pursuant to this Agreement.

      Scratch & Dent Loan: A Loan identified as having minor documentation,
appraisal or underwriting deficiencies, which Loan may not be Delinquent on the
Transfer Date; provided, that the Loan Originator has provided a detailed
description of such deficiencies to the Initial Noteholder prior to the Transfer
Date (or, with respect to Loans that become Scratch & Dent Loans after the
Transfer Date, within one Business Day of the discovery, of such deficiencies);
provided further, however, that any Scratch & Dent Loan which has deficiencies
that render it an Unqualified Loan will be repurchased or substituted pursuant
to the procedures in Section 3.05.

      Second Lien Loan: A Loan secured by the lien on the Mortgaged Property,
subject to one Senior Lien on such Mortgaged Property.

      Securities: The Notes and the Trust Certificates.

      Securities Intermediary: A "securities intermediary" as defined in Section
8-102(a)(14) of the UCC that is holding a Trust Account for the Indenture
Trustee as the sole "entitlement holder" as defined in Section 8-102(a)(7) of
the UCC.

      Securitization: A sale or transfer of Loans or Residual Securities by the
Issuer at the direction of the Majority Noteholders to any other Person in order
to effect one or a series of structured-finance securitization transactions,
including but not limited to transactions involving the issuance of securities
which may be treated for federal income tax purposes as indebtedness of Option
One or one or more of its wholly-owned subsidiaries.

      Securityholder: Any Noteholder or Certificateholder.

                                       24
<PAGE>

      Senior Lien: With respect to any Second Lien Loan, the mortgage loan
having a senior priority lien on the related Mortgaged Property.

      Servicer: Option One, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.

      Servicer Call: The optional repurchase by the Servicer of a Loan pursuant
to Section 3.08(b) hereof.

      Servicer Event of Default: As described in Section 9.01 hereof.

      Servicer Put: The mandatory repurchase by the Servicer, at the option of
the Majority Noteholders, of a Loan pursuant to Section 3.08(a) hereof.

      Servicer's Fiscal Year: May 1st of each year through April 30th of the
following year.

      Servicer's Loan File: With respect to each Loan, the file held by the
Servicer, consisting of all documents (or electronic images thereof) relating to
such Loan, including, without limitation, copies of all of the Loan Documents
included in the related Custodial Loan File.

      Servicer's Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.

      Servicing Addendum: The terms and provisions set forth in Exhibit F
attached hereto relating to the administration and servicing of the Loans.

      Servicing Advance Reimbursement Amount: With respect to any Determination
Date, the amount of any Servicing Advances that have not been reimbursed as of
such date, including Nonrecoverable Servicing Advances.

      Servicing Advances: As defined in Section 4.14(b) of the Servicing
Addendum.

      Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 4.15 of the Servicing Addendum.

      Servicing Fee: As to each Loan (including any Loan that has been
foreclosed and for which the related Mortgaged Property has become a Foreclosure
Property, but excluding any Liquidated Loan), the fee payable monthly to the
Servicer, which shall be the product of 0.50% (50 basis points), or such other
lower amount as shall be mutually agreed to in writing by the Majority
Noteholders and the Servicer, and the Principal Balance of such Loan as of the
beginning of the related Remittance Period, divided by 12. The Servicing Fee
shall only be payable to the extent interest is collected on a Loan.

      Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers annexed to an
Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, on the date hereof to the Issuer and the Indenture Trustee, on
behalf of the Noteholders, as such list may from time to time be amended.

                                       25
<PAGE>

      S&P: Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc.

      State: Means any one of the states of the United States of America or the
District of Columbia.

      Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.22 of the Servicing Addendum in respect of
the qualifications of a Subservicer.

      Subservicing Account: An account established by a Subservicer pursuant to
a Subservicing Agreement, which account must be an Eligible Account.

      Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in Section 4.22 in the Servicing Addendum.

      Subsidiary: With respect to any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

      Substitution Adjustment: With respect to any Loan, as to any date on which
a substitution occurs pursuant to Section 2.05 or Section 3.06 hereof, the
amount, if any, by which (a) the aggregate principal balance of any Qualified
Substitute Loans (after application of principal payments received on or before
the related Transfer Cut-off Date) is less than (b) the aggregate of the
Principal Balances of the related Deleted Loans as of the first day of the month
in which such substitution occurs. With respect to any Residual Security, as to
any date on which a substitution occurs pursuant to Section 2.05 or Section 3.06
hereof, the amount, if any, by which (a) the aggregate principal balance of any
Qualified Substitute Residual Security (after application of principal payments
received on or before the related Transfer Cut-off Date) is less than (b) the
aggregate of the Principal Balances of the related Deleted Residual Securities
as of the first day of the month in which such substitution occurs.

      Tangible Net Worth: With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that residual securities issued by such Person or its
Subsidiaries shall not be treated as intangibles for purposes of this
definition.

                                       26
<PAGE>

      Termination Price: As of any Determination Date, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
end of the preceding Remittance Period; (ii) all unpaid interest accrued on the
Principal Balance of each such Loan at the related Loan Interest Rate to the end
of the preceding Remittance Period; (iii) the aggregate fair market value of
each Foreclosure Property included in the Trust as of the end of the preceding
Remittance Period, as determined by an Independent appraiser acceptable to the
Majority Noteholders as of a date not more than 30 days prior to such Payment
Date; (iv) the Note Principal Balance of the Advance Note as of such date; (v)
all accrued and unpaid interest on the Advance Note; (v) the Principal Balance
of each Residual Security as of such date; (vi) all accrued and unpaid interest
on the Residual Security as of such date; and (vii) all other amounts due under
the Advance Documents.

      Transfer Cut-off Date: With respect to each Loan or Residual Security, the
first day of the month in which the Transfer Date with respect to such Loan or
Residual Security occurs or, with respect a Loan originated in such month, the
date of origination.

      Transfer Cut-off Date Principal Balance: As to each Loan or Residual
Security, its Principal Balance as of the opening of business on the Transfer
Cut-off Date (after giving effect to any payments received on the Loan or
Residual Security before the Transfer Cut-off Date).

      Transfer Date: With respect to each Loan or Residual Security, the day
such Loan or Residual Security is either (i) sold and conveyed to the Depositor
by the Loan Originator pursuant to the Loan Purchase and Contribution Agreement
or the Residual Securities Transfer Agreement and to the Issuer by the Depositor
pursuant to Section 2.01 hereof or (ii) sold to the Issuer pursuant to the
Master Disposition Confirmation Agreement, which results in an increase in the
Note Principal Balance by the related Additional Note Principal Balance. With
respect to any Qualified Substitute Loan or Qualified Substitute Residual
Security, the Transfer Date shall be the day such Loan is conveyed to the Trust
pursuant to Section 2.05 or 3.06.

      Transfer Obligation: The obligation of the Loan Originator under Section
5.06 hereof to make certain payments in connection with Dispositions and other
related matters.

      Transfer Obligation Account: The account designated as such, established
and maintained pursuant to Section 5.05 hereof.

      Transfer Obligation Target Amount: With respect to any Payment Date, the
cumulative total of all withdrawals pursuant to Section 5.05(e), 5.05(f),
5.05(g), and 5.05(h) hereof from the Transfer Obligation Account to but not
including such Payment Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Loan Originator pursuant to Section
5.05(i)(i).

      Trust: Option One Owner Trust 2001-1A, the Delaware business trust created
pursuant to the Trust Agreement.

      Trust Agreement: The Trust Agreement dated as of April 1, 2001 among the
Depositor and the Owner Trustee.

                                       27
<PAGE>

      Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.

      Trust Accounts: The Distribution Account, the Collection Account and the
Transfer Obligation Account.

      Trust Certificate: The meaning assigned thereto in the Trust Agreement.

      Trust Estate: Shall mean the assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Loans as from time to time are subject to this Agreement as listed in
the Loan Schedule, as the same may be amended or supplemented on each Transfer
Date and by the removal of Deleted Loans and Unqualified Loans and by the
addition of Qualified Substitute Loans, together with the Servicer's Loan Files
and the Custodial Loan Files relating thereto and all proceeds thereof, (ii) the
Mortgages and security interests in the Mortgaged Properties, (iii) all payments
in respect of interest and principal with respect to each Loan and Residual
Security received on or after the related Transfer Cut-off Date, (iv) such
assets as from time to time are identified as Foreclosure Property, (v) such
assets and funds as are from time to time deposited in the Distribution Account,
Collection Account and the Transfer Obligation Account, including, without
limitation, amounts on deposit in such accounts that are invested in Permitted
Investments, (vi) lenders' rights under all Mortgage Insurance Policies and to
any Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds and Released
Mortgaged Property Proceeds, (viii) all right, title and interest of the Trust
(but none of the obligations) in and to the obligations of Hedging
Counterparties under Hedging Instruments (ix) the Advance Note and all right,
title and interest of the Trust in and under the Advance Documents, including
without limitation, all voting and consent rights of the Noteholders thereunder,
(x) such Residual Securities as from time to time are subject to this Agreement
as listed in the Residual Securities Schedule, as the same may be amended or
supplemented on each Transfer Date and by the removal of Deleted Residual
Securities and Unqualified Residual Securities and by the addition of Qualified
Substitute Residual Securities, together with the Loan Documents relating
thereto and all proceeds thereof and (xi) all right, title and interest of each
of the Depositor, the Loan Originator and the Trust in and under the Basic
Documents including, without limitation, the obligations of the Loan Originator
under the Loan Purchase and Contribution Agreement, the Master Disposition
Confirmation Agreement and the Residual Securities Transfer Agreement, and all
proceeds of any of the foregoing.

      Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Owner Trustee Fee, the Indenture Trustee Fee and the
Custodian Fee, if any, and any expenses of the foregoing.

      UCC: The Uniform Commercial Code as in effect in the State of New York.

      UCC Assignment: A form "UCC-2" or "UCC-3" statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.

                                       28
<PAGE>

      UCC-1 Financing Statement: A financing statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction.

      Underwriting Guidelines: The underwriting guidelines (including the loan
origination guidelines) of the Loan Originator, as the same may be amended from
time to time with notice to the Initial Noteholder.

      Unfunded Transfer Obligation: With respect to any date of determination,
an amount equal to (x) the sum of (A) 10% of the aggregate Collateral Value (as
of the related Transfer Date) of all Loans sold hereunder, plus (B) 10% of the
aggregate Collateral Value (as of the related Funding Date) of the initial
principal balance of the Advance Note and all Additional Note Balance related
thereto purchased by the Issuer, plus (C) 10% of the aggregate Collateral Value
(as of the related Transfer Date) of all Residual Securities sold hereunder,
plus (D) any amounts withdrawn from the Transfer Obligation Account for return
to the Loan Originator pursuant to Section 5.05(i)(i) hereof prior to such
Payment Date, less (y) the sum of (i) the aggregate amount of payments actually
made by the Loan Originator in respect of the Transfer Obligation pursuant to
Section 5.06, (ii) the amount obtained by multiplying (a) the Unfunded Transfer
Obligation Percentage by (b) the aggregate Collateral Value (as of the related
date of Disposition) of all Loans and Residual Securities that have been subject
to a Disposition and (iii) without duplication, the aggregate amount of the
Repurchase Prices paid by the Servicer in respect of any Servicer Puts.

      Unfunded Transfer Obligation Percentage: As of any date of determination,
an amount equal to (x) the Unfunded Transfer Obligation as of such date, divided
by (y) 100% of the aggregate Collateral Values as of the related Transfer Date
of all Loans in the Loan Pool and all Residual Securities in the Residual
Securities Pool..

      Unqualified Loan: As defined in Section 3.06(a) hereof.

      Unqualified Residual Security As defined in Section 3.06(a) hereof.

      Wet Funded Custodial File Delivery Date: With respect to a Wet Funded
Loan, the later of the fifteenth Business Day and the twentieth calendar day
after the related Transfer Date, provided that if a Default or Event of Default
shall have occurred, the Wet Funded Custodial File Delivery Date shall be the
earlier of (x) such fifteenth Business Day or twentieth calendar day and (y) the
fifth day after the occurrence of such event.

      Wet Funded Loan: A Loan for which the related Custodial Loan File shall
not have been delivered to the Custodian as of the related Transfer Date.

      Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.

      Section 1.02 Other Definitional Provisions.

            (a) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of

                                       29
<PAGE>

agreements or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.

            (b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.

            (c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.

            (d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."

            (e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.

                                   ARTICLE II

       CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES

      Section 2.01 Conveyance of the Trust Estate; Additional Note Principal
Balances.

            (a) (i) On the terms and conditions of this Agreement, on each
Transfer Date during the Revolving Period, the Depositor agrees to offer for
sale and to sell a portion of each of the Loans or Residual Securities, as
applicable, and contribute to the capital stock of the Issuer the balance of
each of the Loans or Residual Securities, as applicable, and deliver the related
Loan Documents to or at the direction of the Issuer. To the extent the Issuer
has or is able to obtain sufficient funds under the Note Purchase Agreement and
the Notes for the purchase thereof, the Issuer agrees to purchase such Loans
offered for sale by the Depositor. On the terms and conditions of this Agreement
and the Master Disposition Confirmation Agreement, on each Transfer Date during
the Revolving Period, the Issuer may acquire Loans from another QSPE Affiliate
of the Loan Originator to the extent the Issuer has or is able to obtain
sufficient funds for the purchase thereof. On the terms and conditions of this
Agreement and the Residual Securities Transfer Agreement, on each Transfer Date
during the Revolving Period, the Issuer may acquire Residual Securities from the
Loan Originator to the extent the Issuer has or is able to obtain sufficient
funds for the purchase thereof. On the terms and conditions of this Agreement
and the Advance Note Purchase Agreement, on each Funding Date during the

                                       30
<PAGE>

Revolving Period, the Issuer shall acquire Additional Note Balance from the
Advance Trust to the extent the Issuer has or is able to obtain sufficient funds
under the Note Purchase Agreement and the Notes for the purchase thereof.

                  (ii) On each Transfer Date, in consideration of the payment of
the Additional Note Principal Balance pursuant to Section 2.06(a) hereof and as
a contribution to the assets of the Issuer, the Depositor as of the related
Transfer Date and concurrently with the execution and delivery hereof, hereby
sells, transfers, assigns, sets over and otherwise conveys to the Issuer,
without recourse, but subject to the other terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and to the
Trust Estate.

                  (iii) During the Revolving Period, on each Transfer Date,
subject to the conditions precedent set forth in Section 2.06(a) and in
accordance with the procedures set forth in Section 2.01(c), the Depositor,
pursuant to an S&SA Assignment, will assign to the Issuer without recourse all
of its respective right, title and interest, in and to the Loans and Residual
Securities and all proceeds thereof listed on the Loan Schedule or Residual
Securities Schedule, as applicable, attached to such S&SA Assignment, including
all interest and principal received by the Loan Originator, the Depositor or the
Servicer on or with respect to the Loans or Residual Securities on or after the
related Transfer Cut-off Date, together with all right, title and interest in
and to the proceeds of any related Mortgage Insurance Policies and all of the
Depositor's rights, title and interest in and to (but none of its obligations
under) the Loan Purchase and Contribution Agreement, the Residual Securities
Transfer Agreement and all proceeds of the foregoing.

                  (iv) The foregoing sales, transfers, assignments, set overs
and conveyances do not, and are not intended to, result in a creation or an
assumption by the Issuer of any of the obligations of the Depositor, the Loan
Originator or any other Person in connection with the Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.

            (b) As of the Closing Date and as of each Transfer Date and each
Funding Date, the Issuer acknowledges the conveyance to it of the Trust Estate,
including, as applicable, all rights, title and interest of the Depositor and
any QSPE Affiliate in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer. Concurrently with such delivery, as of the Closing
Date and as of each Transfer Date and each Funding Date, pursuant to the
Indenture the Issuer pledges the Trust Estate to the Indenture Trustee. In
addition, concurrently with such delivery and in exchange therefor, the Owner
Trustee, pursuant to the instructions of the Depositor, has executed (not in its
individual capacity, but solely as Owner Trustee on behalf of the Issuer) and
caused the Trust Certificates to be authenticated and delivered to or at the
direction of the Depositor.

            (c) (i) Pursuant to and subject to the Note Purchase Agreement, the
Trust may, at its sole option, from time to time request that the Initial
Noteholder advance on any Transfer Date Additional Note Principal Balances and
the Initial Noteholder shall remit on such Transfer Date, to the Advance
Account, an amount equal to the Additional Note Principal Balance. In addition,
if the Initial Noteholder determines on any date following the related Transfer
Date (any such date, a "Collateral Value Increase Date") that the Collateral
value of specified Mortgage Loans shall be 102% pursuant to clause (2)(A) of the
definition of Collateral

                                       31
<PAGE>

Value, the Trust may request that the Initial Noteholder advance Additional Note
Principal Balances equal to such increase in the Collateral Value of the related
Mortgage Loans and the Initial Noteholder may, in its sole discretion, make such
advance of Additional Note Principal Balances. Pursuant to and subject to the
Note Purchase Agreement, the Trust shall request that the Initial Noteholder
advance on each Funding Date Additional Note Principal Balances equal to the
Additional Note Balance to be purchased by the Trust on such date and the
Initial Noteholder shall remit on such Funding Date to the Funding Account an
amount equal to such Additional Note Principal Balance.

                  (ii) Notwithstanding anything to the contrary herein, in no
event shall the Initial Noteholder be required to advance Additional Note
Principal Balances on a Transfer Date or Collateral Value Increase Date if the
conditions precedent with respect to such Transfer Date or Collateral Value Date
under Section 2.06(a) and the conditions precedent to the purchase of Additional
Note Principal Balances set forth in Section 3.01 of the Note Purchase Agreement
have not been fulfilled. Notwithstanding anything to the contrary herein, in no
event shall the Initial Noteholder be required to advance Additional Note
Principal Balances on a Funding Date if the conditions precedent with respect to
such Funding Date under Section 2.06(b), the conditions precedent to the
purchase of Additional Note Principal Balances set forth in Section 3.02 of the
Note Purchase Agreement and the conditions precedent to the purchase of
Additional Principal Balances set forth in Section 3.01 of the Advance Note
Purchase Agreement have not been fulfilled.

                  (iii) The Servicer shall appropriately note such Additional
Note Principal Balance (and the increased Note Principal Balance) in the next
succeeding Payment Statement; provided, however, that failure to make any such
notation in such Payment Statement or any error in such notation shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest and principal payments in respect of
the Note Principal Balance held by such Noteholder. The Initial Noteholder shall
record on the schedule attached to such Noteholder's Note, the date and amount
of any Additional Note Principal Balance advanced by it; provided, that failure
to make such recordation on such schedule or any error in such schedule shall
not adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest payments in respect of the Note
Principal Balance held by such Noteholder.

                  (iv) Absent manifest error, the Note Principal Balance of each
Note as set forth in the Initial Noteholder's records shall be binding upon the
Noteholders and the Trust, notwithstanding any notation made by the Servicer in
its Payment Statement pursuant to the preceding paragraph.

      Section 2.02 Ownership and Possession of Loan Files.

      With respect to each Loan, as of the related Transfer Date the ownership
of the related Promissory Note, the related Mortgage and the contents of the
related Servicer's Loan File and Custodial Loan File shall be vested in the
Trust for the benefit of the Securityholders, although possession of the
Servicer's Loan File on behalf of and for the benefit of the Securityholders
shall remain with the Servicer, and the Custodian shall take possession of the
Custodial Loan Files as contemplated in Section 2.05 hereof.

                                       32
<PAGE>

      Section 2.03 Books and Records; Intention of the Parties.

            (a) As of each Transfer Date, the sale of each of the Loans and
Residual Securities conveyed by the Depositor on such Transfer Date shall be
reflected on the balance sheets and other financial statements of the Depositor
and the Loan Originator, as the case may be, as a sale of assets and a
contribution to capital by the Loan Originator and the Depositor, as applicable,
under GAAP. Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Loan and Residual Security which shall be clearly marked to reflect the
ownership of each Loan or Residual Security, as of the related Transfer Date, by
the Issuer and for the benefit of the Securityholders.

            (b) It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments of the Trust Estate on the initial Closing Date, on each Transfer
Date and as otherwise contemplated by the Basic Documents and the Assignments
shall constitute a sale of the Loans, Residual Securities and all related
property from the Depositor to the Issuer and such property shall not be
property of the Depositor. It is the intention of the parties hereto that, other
than for federal, state and local income or franchise tax purposes, the
transfers and assignments on each Funding Date shall constitute a sale of the
Advance Note, the related Additional Note Balances and all related property from
the Advance Trust to the Issuer and such property shall not be property of the
Advance Depositor or the Receivables Seller. The parties hereto shall treat the
Notes as indebtedness for federal, state and local income and franchise tax
purposes.

            (c) If any of the assignments and transfers of the Loans or the
Residual Securities and the other property of the Trust Estate specified in
Section 2.01(a) hereof to the Issuer pursuant to this Agreement or the
conveyance of the Loans or the Residual Securities or any of such other property
of the Trust Estate to the Issuer, other than for federal, state and local
income or franchise tax purposes, is held or deemed not to be a sale or is held
or deemed to be a pledge of security for a loan, the Depositor intends that the
rights and obligations of the parties shall be established pursuant to the terms
of this Agreement and that, in such event, with respect to such property, (i)
consisting of Loans or Residual Securities and related property, the Depositor
shall be deemed to have granted, as of the related Transfer Date, to the Issuer
a first priority security interest in the entire right, title and interest of
the Depositor in and to such Loans or Residual Securities and proceeds and all
other property conveyed to the Issuer as of such Transfer Date, (ii) consisting
of any other property specified in Section 2.01(a), the Depositor shall be
deemed to have granted, as of the initial Closing Date, to the Issuer a first
priority security interest in the entire right, title and interest of the
Depositor in and to such property and the proceeds thereof. In such event, with
respect to such property, this Agreement shall constitute a security agreement
under applicable law.

            (d) On the Closing Date, the Depositor shall, at such party's sole
expense, cause to be filed UCC-1 Financing Statements naming the Issuer as
"secured party" and describing the Trust Estate being sold by the Depositor to
the Issuer with the appropriate governmental filing office in the state in which
the Depositor is organized and any other jurisdictions as shall be necessary to
perfect a security interest in the Trust Estate. In addition, on the Closing
Date, the Loan Originator shall, at its expense, cause to be filed UCC-1
Financing Statements naming the Depositor as "secured party" and describing the
Loans being sold by the

                                       33
<PAGE>

Loan Originator to the Depositor with the appropriate governmental office in the
state in which the Loan Originator is organized and such other jurisdictions as
shall be necessary to perfect a security interest in the Trust Estate. In
addition, on the Closing Date, the Depositor shall, at its expense, cause to be
filed UCC-1 Financing Statements naming the Depositor as "secured party" and
describing the Loans being sold by the Loan Originator to the Depositor with the
appropriate governmental office in the state in which the Loan Originator is
organized and such other jurisdictions as shall be necessary to perfect a
security interest in the Trust Estate. On or before the initial Funding Date,
the Issuer shall, at its expense, cause to be filed UCC-1 Financing Statements
naming the Issuer as "secured party" and describing the Advance Note being sold
by the Advance Trust to the Issuer with the appropriate governmental office in
the state in which the Advance Trust is organized and such other jurisdictions
as shall be necessary to perfect a security interest in the Trust Estate. On or
before the initial Transfer Date with respect to Residual Securities, the Issuer
shall, at its expense, cause to be filed UCC-1 Financing Statements naming the
Issuer as "secured party" and describing each Residual Security being sold by
the Advance Trust to the Issuer with the appropriate governmental office in the
state of Delaware and such other jurisdictions as shall be necessary to perfect
a security interest in the Trust Estate.

      Section 2.04 Delivery of Loan Documents.

            (a) The Loan Originator shall, prior to the related Transfer Date
(or, in the case of each Wet Funded Loan, the related Wet Funded Custodial File
Delivery Date), in accordance with the terms and conditions set forth in the
Custodial Agreement, deliver or cause to be delivered to the Custodian, as the
designated agent of the Indenture Trustee, a Loan Schedule and each of the
documents constituting the Custodial Loan File with respect to each Loan. The
Loan Originator shall assure that (i) in the event that any Wet Funded Loan is
not closed and funded to the order of the appropriate Borrower on the day funds
are provided to the Loan Originator by the Initial Noteholder on behalf of the
Issuer, such funds shall be promptly returned to the Initial Noteholder on
behalf of the Issuer and (ii) in the event that any Wet Funded Loan is subject
to a recission, all funds received in connection with such recission shall be
promptly returned to the Initial Noteholder on behalf of the Issuer. With
respect to each Residual Security, the Loan Originator shall, prior to the
related Transfer Date, deliver or cause to be delivered to the Indenture trustee
a Residual Security Schedule and each of the related Loan Documents and shall
cause the Delivery of such Residual Security to the Indenture Trustee.

            (b) The Loan Originator shall, on the related Transfer Date (or in
the case of a Wet Funded Loan, on or before the related Wet Funded Custodial
File Delivery Date), deliver or cause to be delivered to the Servicer the
related Servicer's Loan File (i) for the benefit of, and as agent for, the
Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf of the
Noteholders, for so long as the Notes are outstanding; after the Notes are not
outstanding, the Servicer's Loan File shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Certificateholders.

            (c) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the State
of California (or upon prior written notice from the Custodian to the Loan
Originator and the Initial Noteholder and delivery of an Opinion of Counsel with
respect to the continued perfection of the Indenture

                                       34
<PAGE>

Trustee's security interest, in the State of Minnesota or Utah) and, in
connection therewith, shall act solely as agent for the Noteholders in
accordance with the terms hereof and not as agent for the Loan Originator, the
Servicer or any other party.

      Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain
Substitutions and Repurchases; Certification by the Custodian.

            (a) The Indenture Trustee declares that it will cause the Custodian
to hold the Custodial Loan Files and any additions, amendments, replacements or
supplements to the documents contained therein, as well as any other assets
included in the Trust Estate and delivered to the Custodian, in trust, upon and
subject to the conditions set forth herein. The Indenture Trustee further agrees
to cause the Custodian to execute and deliver such certifications as are
required under the Custodial Agreement and to otherwise direct the Custodian to
perform all of its obligations with respect to the Custodial Loan Files in
strict accordance with the terms of the Custodial Agreement.

            (b) (i) With respect to any Loans which are set forth as exceptions
in the Exceptions Report, the Loan Originator shall cure such exceptions by
delivering such missing documents to the Custodian or otherwise curing the
defect no later than, in the case of (x) a non-Wet Funded Loan, 5 Business Days,
or (y) in the case of a Wet Funded Loan one Business Day after the Wet Funded
Custodial File Delivery Date, in each case, following the receipt of the first
Exceptions Report listing such exception with respect to such Loan.

                (ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
Section 2.05 and such failure has a material adverse effect on the value or
enforceability of any Loan or the interests of the Securityholders in any Loan,
the Loan Originator shall repurchase such Loan within one Business Day of notice
thereof from the Indenture Trustee or the Initial Noteholder at the Repurchase
Price thereof with respect to such Loan by depositing such Repurchase Price in
the Collection Account. In lieu of such a repurchase, the Depositor and Loan
Originator may comply with the substitution provisions of Section 3.06 hereof.
The Loan Originator shall provide the Servicer, the Indenture Trustee, the
Issuer and the Initial Noteholder with a certification of a Responsible Officer
on or prior to such repurchase or substitution indicating that the Loan
Originator intends to repurchase or substitute such Loan.

                (iii) It is understood and agreed that the obligation of the
Loan Originator to repurchase or substitute any such Loan pursuant to this
Section 2.05(b) shall constitute the sole remedy with respect to such failure to
comply with the foregoing delivery requirements.

            (c) In performing its reviews of the Custodial Loan Files pursuant
to the Custodial Agreement, the Custodian shall have no responsibility to
determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction.

                                       35
<PAGE>

            (d) The Servicer's Loan File shall be held in the custody of the
Servicer (i) for the benefit of, and as agent for, the Noteholders and (ii) for
the benefit of the Indenture Trustee, on behalf of the Noteholders, for so long
as the Notes are outstanding; after the Notes are not outstanding, the
Servicer's Loan File shall be held in the custody of the Servicer for the
benefit of, and as agent for, the Certificateholders. It is intended that, by
the Servicer's agreement pursuant to this Section 2.05(d), the Indenture Trustee
shall be deemed to have possession of the Servicer's Loan Files for purposes of
Section 9-305 of the UCC of the state in which such documents or instruments are
located. The Servicer shall promptly report to the Indenture Trustee any failure
by it to hold the Servicer's Loan File as herein provided and shall promptly
take appropriate action to remedy any such failure. In acting as custodian of
such documents and instruments, the Servicer agrees not to assert any legal or
beneficial ownership interest in the Loans or such documents or instruments.
Subject to Section 8.01(d), the Servicer agrees to indemnify the Securityholders
and the Indenture Trustee, their officers, directors, employees, agents and
"control persons" as such term is used under the Act and under the Securities
Exchange Act of 1934, as amended for any and all liabilities, obligations,
losses, damages, payments, costs or expenses of any kind whatsoever which may be
imposed on, incurred by or asserted against the Securityholders or the Indenture
Trustee as the result of the negligence or willful misfeasance by the Servicer
relating to the maintenance and custody of such documents or instruments which
have been delivered to the Servicer; provided, however, that the Servicer will
not be liable for any portion of any such amount resulting from the negligence
or willful misconduct of any Securityholders or the Indenture Trustee; and
provided, further, that the Servicer will not be liable for any portion of any
such amount resulting from the Servicer's compliance with any instructions or
directions consistent with this Agreement issued to the Servicer by the
Indenture Trustee or the Majority Noteholders. The Indenture Trustee shall have
no duty to monitor or otherwise oversee the Servicer's performance as custodian
of the Servicer Loan File hereunder.

      Section 2.06 Conditions Precedent to Transfer Dates, Funding Dates and
Collateral Value Increase Dates.

      (a) Two (2) Business Days prior to each Transfer Date, the Issuer shall
give notice to the Initial Noteholder of such upcoming Transfer Date and provide
an estimate of the number of Loans and Residual Securities and the aggregate
Principal Balance of such Loans and the aggregate Principal Balance of such
Residual Securities to be transferred on such Transfer Date. On the Business Day
prior to each Transfer Date, the Issuer shall provide the Initial Noteholder a
final Loan Schedule with respect to the Loans to be transferred on such Transfer
Date and a final Residual Securities Schedule with respect to the Residual
Securities to be transferred on such Transfer Date. On each Transfer Date, the
Depositor or the applicable QSPE Affiliate shall convey to the Issuer, the
Loans, Residual Securities and the other property and rights related thereto
described in the related S&SA Assignment, and the Issuer, only upon the
satisfaction of each of the conditions set forth below on or prior to such
Transfer Date, shall deposit or cause to be deposited cash in the amount of the
Additional Note Principal Balance received from the Initial Noteholder in the
Advance Account in respect thereof, and the Servicer shall, promptly after such
deposit, withdraw the amount deposited in respect of applicable Additional Note
Principal Balance from the Advance Account, and distribute such amount to or at
the direction of the Depositor or the applicable QSPE Affiliate.

                                       36
<PAGE>

      As of the Closing Date, each Transfer Date and, as applicable, each
Collateral Value Increase Date:

                  (i) the Depositor, the QSPE Affiliate and the Servicer, as
applicable, shall have delivered to the Issuer and the Initial Noteholder duly
executed Assignments, which shall have attached thereto a Loan Schedule and
Residual Securities Schedule, as applicable, setting forth the appropriate
information with respect to all Loans and Residual Securities conveyed on such
Transfer Date and shall have delivered to the Initial Noteholder a computer
readable transmission of such Loan Schedule and/or Residual Securities Schedule;

                  (ii) the Depositor shall have deposited, or caused to be
deposited, in the Collection Account all collections received with respect to
each of the Loans and Residual Securities on and after the applicable Transfer
Cut-off Date or, in the case of purchases from a QSPE Affiliate, such QSPE
Affiliate shall have deposited, or caused to be deposited, in the Collection
Account all collections received with respect to each of the Loans and allocable
to the period after the related Transfer Date;

                  (iii) as of such Transfer Date or Collateral Value Increase
Date, neither the Loan Originator, the Depositor or the QSPE Affiliate, as
applicable, shall (A) be insolvent, (B) be made insolvent by its respective sale
of Loans or Residual Securities or (C) have reason to believe that its
insolvency is imminent;

                  (iv) the Revolving Period shall not have terminated;

                  (v) as of such Transfer Date or Collateral Value Increase Date
(after giving effect to the sale of Loans on such Transfer Date), there shall be
no Overcollateralization Shortfall;

                  (vi) in the case of non-Wet Funded Loans, the Issuer shall
have delivered the Custodial Loan File to the Custodian in accordance with the
Custodial Agreement and the Initial Noteholder shall have received a copy of the
Trust Receipt and Exceptions Report reflecting such delivery;

                  (vii) each of the representations and warranties made by the
Loan Originator contained in Exhibit E with respect to the Loans and Section 3
of the Residual Securities Transfer Agreement with respect to the Residual
Securities shall be true and correct in all material respects as of the related
Transfer Date with the same effect as if then made and the proviso set forth in
Section 3.05 with respect to Loans sold by a QSPE Affiliate shall not be
applicable to any Loans, and the Depositor or the QSPE Affiliate, as applicable,
shall have performed all obligations to be performed by it under the Basic
Documents on or prior to such Transfer Date or Collateral Value Increase Date;

                  (viii) the Depositor or the QSPE Affiliate shall, at its own
expense, within one Business Day following the Transfer Date, indicate in its
computer files that the Loans and Residual Securities identified in each S&SA
Assignment have been sold to the Issuer pursuant to this Agreement and the S&SA
Assignment;

                                       37
<PAGE>

                  (ix) the Depositor or the QSPE Affiliate shall have taken any
action requested by the Indenture Trustee, the Issuer or the Noteholders
required to maintain the ownership interest of the Issuer in the Trust Estate;

                  (x) no selection procedures believed by the Depositor or the
QSPE Affiliate to be adverse to the interests of the Noteholders shall have been
utilized in selecting the Loans or the Residual Securities to be conveyed on
such Transfer Date;

                  (xi) the Depositor shall have provided the Issuer, the
Indenture Trustee and the Initial Noteholder no later than two Business Days
prior to such date a notice of Additional Note Principal Balance in the form of
Exhibit A hereto;

                  (xii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance will not exceed the
Maximum Note Principal Balance;

                  (xiii) all conditions precedent to the Depositor's purchase of
Loans and the Residual Securities pursuant to the Loan Purchase and Contribution
Agreement and the Residual Securities Transfer Agreement shall have been
fulfilled as of such Transfer Date and, in the case of purchases from a QSPE
Affiliate, all conditions precedent to the Issuer's purchase of Loans pursuant
to the Master Disposition Confirmation Agreement shall have been fulfilled as of
such Transfer Date;

                  (xiv) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note Purchase Agreement shall
have been fulfilled as of such Transfer Date or Collateral Value Increase Date;

                  (xv) with respect to each Loan acquired from any QSPE
Affiliate that has a limited right of recourse to the Loan Originator under the
terms of the applicable loan purchase agreement, the Loan Originator has not
been required to pay any amount to or on behalf of such QSPE Affiliate that
lowered the recourse to the Loan Originator available to such QSPE Affiliate
below the maximum recourse to the Loan Originator available to such QSPE
Affiliate under the terms of the related loan purchase contract providing for
recourse by that QSPE Affiliate to the Loan Originator; and

                  (xvi) with respect to each Wet Funded Loan, the Guaranty shall
be in full force and effect.

        (b) Two (2) Business Days prior to each Funding Date, the Issuer shall
deliver or cause to be delivered to the Initial Noteholder the Funding Notice
and Funding Date Report delivered by the Receivables Seller pursuant to the
Receivables Purchase Agreement. On each Funding Date, the Issuer shall purchase
the Additional Note Balance issued by the Advance Trust on such Funding Date,
and the Issuer, only upon the satisfaction of each of the conditions set forth
below on or prior to such Funding Date, shall cause the Initial Noteholder to
deposit the applicable Additional Note Principal Balance into the Funding
Account.

                                       38
<PAGE>

      As of the each Funding Date:

                  (xvii) the Receivables Seller and the Advance Depositor, shall
have delivered to the Issuer the related Funding Notice and Bill of Sale, and
the exhibits related thereto, pursuant to the Receivables Purchase Agreement;

                  (xviii) neither the Loan Originator nor the Depositor shall
(A) be insolvent or (B) have reason to believe that its insolvency is imminent;

                  (xix) the Revolving Period shall not have terminated;

                  (xx) after giving effect to the purchase of Additional Note
Balance on such Funding Date, there shall be no Overcollateralization Shortfall;

                  (xxi) the Issuer shall have taken any action requested by the
Indenture Trustee or the Noteholders required to maintain the ownership interest
of the Issuer in the Trust Estate;

                  (xxii) the Issuer shall have provided the Indenture Trustee
and the Initial Noteholder no later than two Business Days prior to such date a
notice of Additional Note Principal Balance in the form of Exhibit A hereto;

                  (xxiii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance will not exceed the
Maximum Note Principal Balance;

                  (xxiv) all conditions precedent to the Issuer's purchase of
Additional Note Balance pursuant to the Advance Note Purchase Agreement shall
have been fulfilled as of such Funding Date; and

                  (xxv) all conditions precedent to the Noteholders' purchase of
Additional Note Balance pursuant to the Note Purchase Agreement shall have been
fulfilled as of such Funding Date.

      Section 2.07 Termination of Revolving Period.

      Upon the occurrence of (i) an Event of Default or Default or (ii) a Rapid
Amortization Trigger or (iii) the Unfunded Transfer Obligation Percentage equals
4.0% or less or (iv) Option One or any of its Affiliates shall default under, or
fail to perform as requested under, or shall otherwise materially breach the
terms of any repurchase agreement, loan and security agreement or similar credit
facility or agreement entered into by Option One or any of its Affiliates,
including the 2001-1B Sale and Servicing Agreement and the Sale and Servicing
Agreement, dated as of April 1, 2001, as amended and restated through and
including November 25, 2003, among the Option One Owner Trust 2001-2, the
Depositor, Option One and the Indenture Trustee, and such default, failure or
breach shall entitle any counterparty to declare the Indebtedness thereunder to
be due and payable prior to the maturity thereof, the Initial Noteholder may, in
any such case, in its sole discretion, terminate the Revolving Period.

                                       39
<PAGE>

      Section 2.08 Correction of Errors.

      The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price from and after the Closing
Date. In the event that an error in the Sales Price is discovered by either
party, including without limitation, any error due to miscalculations of Market
Value where insufficient information has been provided with respect to a Loan or
Residual Security to make an accurate determination of Market Value as of any
applicable Transfer Date, any miscalculations of Principal Balance, accrued
interest, Overcollateralization Shortfall or aggregate unreimbursed Servicing
Advances attributable to the applicable Loan or Residual Security, or any
prepayments not properly credited, such party shall give prompt notice to the
other parties hereto, and the party that shall have benefitted from such error
shall promptly remit to the other, by wire transfer of immediately available
funds, the amount of such error with no interest thereon.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Section 3.01 Representations and Warranties of the Depositor.

      The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:

            (a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization and
has, and had at all relevant times, full power to own its property, to carry on
its business as currently conducted, to enter into and perform its obligations
under each Basic Document to which it is a party;

            (b) The execution and delivery by the Depositor of each Basic
Document to which the Depositor is a party and its performance of and compliance
with all of the terms thereof will not violate the Depositor's organizational
documents or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;

            (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by the
other party or parties thereto, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
thereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

                                       40
<PAGE>

            (d) The Depositor is not in violation of, and the execution and
delivery by the Depositor of each Basic Document to which the Depositor is a
party and its performance and compliance with the terms of each Basic Document
to which the Depositor is a party will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or any of its properties or materially and adversely
affect the performance of any of its duties hereunder;

            (e) There are no actions or proceedings against, or investigations
of, the Depositor currently pending with regard to which the Depositor has
received service of process and no action or proceeding against, or
investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or other
tribunal that (A) if determined adversely to the Depositor, would prohibit its
entering into any of the Basic Documents to which it is a party or render the
Securities invalid, (B) seek to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by any of the Basic
Documents to which it is a party or (C) if determined adversely to the
Depositor, would reasonably be expected to prohibit or materially and adversely
affect the performance by the Depositor of its obligations under, or the
validity or enforceability of, any of the Basic Documents to which it is a party
or the Securities (it being understood that the satisfaction of the Financial
Covenants by the Loan Originator is not considered an obligation of the
Depositor);

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of the
Basic Documents to which the Depositor is a party or the Securities, or for the
consummation of the transactions contemplated by any of the Basic Documents to
which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;

            (g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of any of the Basic Documents to which it is a party or the assumption
of any of its obligations thereunder; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Depositor;

            (h) The Depositor did not transfer the Loans or Residual Securities
sold thereon by the Depositor to the Trust with any intent to hinder, delay or
defraud any of its creditors; nor will the Depositor be rendered insolvent as a
result of such sale;

            (i) The Depositor had good title to, and was the sole owner of, each
Loan and Residual Security sold thereon by the Depositor free and clear of any
lien other than any such lien released simultaneously with the sale contemplated
herein, and, immediately upon each transfer and assignment herein contemplated,
the Depositor will have delivered to the Trust good title to, and the Trust will
be the sole owner of, each Loan and Residual Security transferred by the
Depositor thereon free and clear of any lien;

                                       41
<PAGE>

            (j) The Depositor acquired title to each of the Loans and Residual
Securities sold thereon by the Depositor in good faith, without notice of any
adverse claim;

            (k) None of the Basic Documents to which the Depositor is a party,
nor any Officer's Certificate, statement, report or other document prepared by
the Depositor and furnished or to be furnished by it pursuant to any of the
Basic Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;

            (l) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended;

            (m) The transfer, assignment and conveyance of the Loans and the
Residual Securities by the Depositor thereon pursuant to this Agreement is not
subject to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;

            (n) The Depositor's principal place of business and chief executive
offices are located at Irvine, California or at such other address as shall be
designated by such party in a written notice to the other parties hereto;

            (o) The Depositor covenants that during the continuance of this
Agreement it will comply in all respects with the provisions of its
organizational documents in effect from time to time; and

            (p) The representations and warranties set forth in (h), (i), (j)
and (m) above were true and correct (with respect to the applicable QSPE
Affiliate) with respect to each Loan transferred to the Trust by any QSPE
Affiliate at the time such Loan was transferred to a QSPE Affiliate.

      Section 3.02 Representations and Warranties of the Loan Originator.

      The Loan Originator hereby represents and warrants to the other parties
hereto and the Securityholders that as of the Closing Date and as of each
Transfer Date:

            (a) The Loan Originator is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Mortgaged Property related to a Loan
sold by it is located and (ii) is in compliance with the laws of any such
jurisdiction, in both cases, to the extent necessary to ensure the
enforceability of such Loans in accordance with the terms thereof and had at all
relevant times, full corporate power to originate such Loans, to own its
property, to carry on its business as currently conducted and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Loan Originator's articles of organization or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or

                                       42
<PAGE>

result in the breach or acceleration of, any contract, agreement or other
instrument to which the Loan Originator is a party or which may be applicable to
the Loan Originator or any of its assets;

            (c) The Loan Originator has the full power and authority to enter
into and consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of the Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

            (d) The Loan Originator is not in violation of, and the execution
and delivery of each Basic Document to which it is a party by the Loan
Originator and its performance and compliance with the terms of each Basic
Document to which it is a party will not constitute a violation with respect to,
any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which it is a
party;

            (e) There are no actions or proceedings against, or investigations
of, the Loan Originator currently pending with regard to which the Loan
Originator has received service of process and no action or proceeding against,
or investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Securities invalid, (B) seek to prevent the issuance of the
Securities or the consummation of any of the transactions contemplated by any
Basic Document to which it is a party or (C) if determined adversely to the Loan
Originator, would reasonably be expected to prohibit or materially and adversely
affect the sale of the Loans or Residual Securities to the Depositor, the
performance by the Loan Originator of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities,
provided, however, that for purposes of calculating whether the Loan Seller
satisfies the Financial Covenants, such action, proceeding or investigation
shall not be taken into account unless there is a reasonable possibility of an
adverse determination of such action, proceeding or investigation;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the issuance of the
Securities, (3) the sale and contribution of the Loans or the sale of the
Residual Securities, or (4) the consummation of the transactions required of it
by any Basic Document to which it is a party, except such as shall have been
obtained before such date;

                                       43
<PAGE>

            (g) Immediately prior to the sale of any Loan or Residual Security
to the Depositor, the Loan Originator had good title to such Loan or Residual
Security sold by it on such date without notice of any adverse claim;

            (h) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Loan Originator to the
Initial Noteholder in connection with the negotiation, preparation or delivery
of the Basic Documents to which it is a party or delivered pursuant thereto,
when taken as a whole, do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the Loan
Originator to the Initial Noteholder in connection with the Basic Documents to
which it is a party and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified.

            (i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a party;
no petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Loan Originator prior to the date hereof;

            (j) The Loan Originator has transferred the Loans or Residual
Securities transferred by it on or prior to such Transfer Date without any
intent to hinder, delay or defraud any of its creditors;

            (k) The Loan Originator has received fair consideration and
reasonably equivalent value in exchange for the Loans and Residual Securities
sold by it on such Transfer Date to the Depositor;

            (l) The Loan Originator has not dealt with any broker or agent or
other Person who might be entitled to a fee, commission or compensation in
connection with the transaction contemplated by this Agreement;

            (m) The Loan Originator is in compliance with each of its financial
covenants set forth in Section 7.02; and

            (n) The Loan Originator's principal place of business and chief
executive offices are located at Irvine, California or at such other address as
shall be designated by such party in a written notice to the other parties
hereto.

      It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Custodial
Loan Files to the Custodian (as the agent of the Indenture Trustee) and shall
inure to the benefit of the Securityholders, the Depositor, the Servicer, the
Indenture Trustee, the Owner Trustee and the Issuer. Upon discovery by the Loan
Originator, the Depositor, the Servicer, the Indenture Trustee or the Trust of a
breach of any of the foregoing representations and warranties that materially
and adversely affects the value of

                                       44
<PAGE>

any Loan or Residual Security or the interests of the Securityholders in any
Loan or Residual Security or in the Securities, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The obligations of the Loan
Originator set forth in Sections 2.05 and 3.06 hereof to cure any breach or to
substitute for or repurchase an affected Loan or Residual Security shall
constitute the sole remedies available hereunder to the Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Trust respecting a breach
of the representations and warranties contained in this Section 3.02. The fact
that the Initial Noteholder has conducted or has failed to conduct any partial
or complete due diligence investigation of the Loan Files shall not affect the
Securityholders rights to demand repurchase or substitution as provided under
this Agreement.

      Section 3.03 Representations, Warranties and Covenants of the Servicer.

      The Servicer hereby represents and warrants to and covenants with the
other parties hereto and the Securityholders that as of the Closing Date and as
of each Transfer Date:

            (a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and (i) is duly
qualified, in good standing and licensed to carry on its business in each state
where any Mortgaged Property is located, and (ii) is in compliance with the laws
of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform
its duties under each Basic Document to which it is a party and had at all
relevant times, full corporate power to own its property, to carry on its
business as currently conducted, to service the Loans and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Servicer of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Servicer's articles of incorporation or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Servicer is a party or which are applicable to the Servicer or any of its
assets;

            (c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);

            (d) The Servicer is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Servicer and its
performance and compliance with the terms of each Basic Document to which it is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state,

                                       45
<PAGE>

municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or materially and adversely affect the performance of
its duties under any Basic Document to which it is a party;

            (e) There are no actions or proceedings against, or investigations
of, the Servicer currently pending with regard to which the Servicer has
received service of process and no action or proceeding against, or
investigation of, the Servicer is, to the knowledge of the Servicer, threatened
or otherwise pending before any court, administrative agency or other tribunal
that (A) if determined adversely to the Servicer, would prohibit its entering
into any Basic Document to which it is a party, (B) seek to prevent the
consummation of any of the transactions contemplated by any Basic Document to
which it is a party or (C) if determined adversely to the Servicer, would
reasonably be expected to prohibit or materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities,
provided, however, that for the purpose of calculating whether the Servicer
satisfies the Financial Covenants, such action, proceeding or investigation
shall not be taken into account unless there is a reasonable possibility of an
adverse determination of such action, proceeding or investigation;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Securities, or for the consummation of
the transactions contemplated by any Basic Document to which it is a party,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;

            (g) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Servicer to the Initial
Noteholder in connection with the negotiation, preparation or delivery of the
Basic Documents to which it is a party or delivered pursuant thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to
the Initial Noteholder in connection with the Basic Documents to which it is a
party and the transactions contemplated thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified.

            (h) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to under the Basic
Documents to which it is a party;

            (i) The Servicer acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Compensation shall be treated
by the Servicer, for accounting purposes, as compensation for the servicing and
administration of the Loans pursuant to this Agreement;

            (j) The Servicer is in compliance with each of its financial
covenants set forth in Section 7.02; and

                                       46
<PAGE>

            (k) The Servicer is an Eligible Servicer and covenants to remain an
Eligible Servicer or, if not an Eligible Servicer, each Subservicer is an
Eligible Servicer and the Servicer covenants to cause each Subservicer to be an
Eligible Servicer.

      It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Indenture Trustee or the Custodian on its
behalf and shall inure to the benefit of the Depositor, the Securityholders, the
Indenture Trustee and the Issuer. Upon discovery by the Loan Originator, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or the Issuer
of a breach of any of the foregoing representations, warranties and covenants
that materially and adversely affects the value of any Loan or Residual Security
or the interests of the Securityholders therein or in the Securities, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties. The fact
that the Initial Noteholder has conducted or has failed to conduct any partial
or complete due diligence investigation shall not affect the Securityholders,
rights to exercise their remedies as provided under this Agreement.

      Section 3.04 Reserved.

      Section 3.05 Representations and Warranties Regarding Loans.

      The Loan Originator makes each of the representations and warranties set
forth on Exhibit E hereto with respect to each Loan and makes each
representation and warranty set forth in Section 3 of the Residual Securities
Transfer Agreement with respect to each Residual Security, provided, however,
that with respect to each Loan transferred to the Issuer by a QSPE Affiliate, to
the extent that the Loan Originator has at the time of such transfer actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator shall
notify the Initial Noteholder of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty.

      In addition, the Loan Originator represents and warrants with respect to
each Loan sold by a QSPE Affiliate that the Loan Originator has not been
required to pay any amount to or on behalf of such QSPE Affiliate that lowered
the recourse to the Loan Originator available to such QSPE Affiliate below the
maximum recourse to the Loan Originator available to such QSPE Affiliate under
the terms of any loan purchase agreement providing for recourse by that QSPE
Affiliate to the Loan Originator.

      Section 3.06 Purchase and Substitution.

            (a) It is understood and agreed that the representations and
warranties set forth in Exhibit E hereto and in Section 3 of the Residual
Securities Transfer Agreement shall survive the conveyance of the Loans or the
Residual Securities to the Indenture Trustee on behalf of the Issuer, and the
delivery of the Securities to the Securityholders. Upon discovery by the
Depositor, the Servicer, the Loan Originator, the Custodian, the Issuer, the
Indenture Trustee or any Securityholder of a breach of any of such
representations and warranties or the representations and warranties of the Loan
Originator set forth in Section 3.02 which materially

                                       47
<PAGE>

and adversely affects the value or enforceability of any Loan or Residual
Security or the interests of the Securityholders in any Loan or Residual
Security (notwithstanding that such representation and warranty was made to the
Loan Originator's best knowledge) or which, as a result of the attributes of the
aggregate Loan Pool or Residual Securities Pool, constitutes a breach of the
representations and warranties set forth in Exhibit E or in Section 3 of the
Residual Securities Transfer Agreement, the party discovering such breach shall
give prompt written notice to the others. The Loan Originator shall within 5
Business Days of the earlier of the Loan Originator's discovery or the Loan
Originator's receiving notice of any breach of a representation or warranty,
promptly cure such breach in all material respects. If within 5 Business Days
after the earlier of the Loan Originator's discovery of such breach or the Loan
Originator's receiving notice thereof such breach has not been remedied by the
Loan Originator and such breach materially and adversely affects the interests
of the Securityholders in the related Loan (an "Unqualified Loan") or related
Residual Security (an "Unqualified Residual Security"), the Loan Originator
shall promptly upon receipt of written instructions from the Majority
Noteholders either (i) remove such Unqualified Loan (in which case it shall
become a Deleted Loan) or Unqualified Residual Security (in which case it shall
become a Deleted Residual Security) from the Trust and substitute one or more
Qualified Substitute Loans (in place of a Deleted Loan) or Qualified Residual
Securities (in place of a Deleted Residual Security) in the manner and subject
to the conditions set forth in this Section 3.06 or (ii) purchase such
Unqualified Loan or Unqualified Residual Security at a purchase price equal to
the Repurchase Price with respect to such Unqualified Loan or Unqualified
Residual Security by depositing or causing to be deposited such Repurchase Price
in the Collection Account.

      Any substitution of Loans or Residual Securities pursuant to this Section
3.06(a) shall be accompanied by payment by the Loan Originator of the
Substitution Adjustment, if any, (x) if no Overcollateralization Shortfall
exists on the date of such substitution (after giving effect to such
substitution), remitted to the Noteholders in accordance with Section
5.01(c)(4)(i) or (y) otherwise to be deposited in the Collection Account
pursuant to Section 5.01(b)(1) hereof.

            (b) As to any Deleted Loan or Deleted Residual Security for which
the Loan Originator substitutes a Qualified Substitute Loan or Loans or
Qualified Substitute Residual Security or Residual Securities, the Loan
Originator shall effect such substitution by delivering to the Indenture Trustee
and Initial Noteholder a certification executed by a Responsible Officer of the
Loan Originator to the effect that the Substitution Adjustment, if any, has been
(x) if no Overcollateralization Shortfall exists on the date of such
substitution (after giving effect to such substitution), remitted to the
Noteholders in accordance with Section 5.01(c)(4)(i), or (y) otherwise deposited
in the Collection Account. As to any Deleted Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator shall
effect such substitution by delivering to the Custodian the documents
constituting the Custodial Loan File for such Qualified Substitute Loan or
Loans. As to any Deleted Residual Security for which the Loan Originator
substitutes a Qualified Substitute Residual Security or Residual Securities, the
Loan Originator shall effect such substitution by delivering to the Trustee the
Loan Documents for such Qualified Substitute Residual Security or Residual
Securities.

      The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan or Qualified Substitute
Residual Security after the date of such substitution. Monthly Payments received
with respect to Qualified Substitute Loans or

                                       48
<PAGE>

Qualified Substitute Residual Securities on or before the date of substitution
will be retained by the Loan Originator. The Trust will be entitled to all
payments received on the Deleted Loan or Deleted Residual Security on or before
the date of substitution and the Loan Originator shall thereafter be entitled to
retain all amounts subsequently received in respect of such Deleted Loan or
Residual Security. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and Initial Noteholder that such substitution has taken place and the
Servicer shall amend the Loan Schedule or Residual Security Schedule, as
applicable, to reflect (i) the removal of such Deleted Loan or Deleted Residual
Security from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan or Qualified Substitute Residual Security. The
Servicer shall promptly deliver to the Issuer, the Loan Originator, the
Indenture Trustee and Initial Noteholder, a copy of the amended Loan Schedule
and/or a copy of the amended Residual Security Schedule. Upon such substitution,
such Qualified Substitute Loan or Loans or Qualified Substitute Residual
Security or Residual Securities shall be subject to the terms of this Agreement
in all respects, and the Loan Originator shall be deemed to have made with
respect to such Qualified Substitute Loan or Loans, as of the date of
substitution, the covenants, representations and warranties set forth in Exhibit
E hereto and with respect to such or Qualified Substitute Residual Security or
Residual Securities, the covenants, representations and warranties set forth in
the Residual Securities Transfer Agreement. On the date of such substitution,
the Loan Originator will (x) if no Overcollateralization Shortfall exists as of
the date of substitution (after giving effect to such substitution), remit to
the Noteholders as provided in Section 5.01(c)(4)(i) or (y) otherwise deposit
into the Collection Account, in each case an amount equal to the related
Substitution Adjustment, if any. In addition, on the date of such substitution,
the Servicer shall cause the Indenture Trustee to release the Deleted Loan or
Deleted Residual Securities from the lien of the Indenture and the Servicer will
cause such Qualified Substitute Loan or Qualified Substitute Residual Securities
to be pledged to the Indenture Trustee under the Indenture as part of the Trust
Estate.

            (c) With respect to all Unqualified Loans, Unqualified Residual
Securities or other Loans or Residual Securities repurchased by the Loan
Originator pursuant to this Agreement, upon the deposit of the Repurchase Price
therefor into the Collection Account, (i) the Issuer shall assign to the Loan
Originator, without representation or warranty, all of the Issuer's right, title
and interest in and to such Unqualified Loan or Unqualified Residual Security,
which right, title and interest were conveyed to the Issuer pursuant to Section
2.01 hereof and (ii) the Indenture Trustee shall assign to the Loan Originator,
without recourse, representation or warranty, all the Indenture Trustee's right,
title and interest in and to such Unqualified Loans or Loans or Unqualified
Residual Security or Residual Securities, which right, title and interest were
conveyed to the Indenture Trustee pursuant to Section 2.01 hereof and the
Indenture. The Issuer and the Indenture Trustee shall, at the expense of the
Loan Originator, take any actions as shall be reasonably requested by the Loan
Originator to effect the repurchase of any such Loans or Residual Securities and
to have the Custodian return the Custodial Loan File of the deleted Loan to the
Servicer or to have the Trustee return the Loan Documents of the Deleted
Residual Security to the Servicer.

            (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.06 to cure, purchase or substitute for a
Unqualified Loan or Unqualified

                                       49
<PAGE>

Residual Security constitute the sole remedies hereunder of the Depositor, the
Issuer, the Indenture Trustee, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 hereof and in Exhibit E hereto and the Residual Security Transfer
Agreement. Any cause of action against the Loan Originator relating to or
arising out of a defect in a Custodial Loan File or the Loan Documents (with
respect to a Residual Security) or against the Loan Originator relating to or
arising out of a breach of any representations and warranties made in Sections
3.02 hereof and in Exhibit E hereto or the Residual Security Transfer Agreement
shall accrue as to any Loan or Residual Security upon (i) discovery of such
defect or breach by any party and notice thereof to the Loan Originator or
notice thereof by the Loan Originator to the Indenture Trustee, (ii) failure by
the Loan Originator to cure such defect or breach or purchase or substitute such
Loan or Residual Security as specified above, and (iii) demand upon the Loan
Originator, as applicable, by the Issuer or the Majority Noteholders for all
amounts payable in respect of such Loan or Residual Security.

            (e) Neither the Issuer nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Loan or Residual Security pursuant to this Section or the
eligibility of any Loan for purposes of this Agreement.

      Section 3.07 Dispositions.

            (a) The Majority Noteholders may at any time, and from time to time,
require that the Issuer redeem all or any portion of the Note Principal Balance
of the Notes by paying the Note Redemption Amount with respect to the Note
Principal Balance to be redeemed. In connection with any such redemption, the
Issuer shall effect Dispositions at the direction of the Majority Noteholders in
accordance with this Agreement, including in accordance with this Section 3.07.

            (b) (i) In consideration of the consideration received from the
Depositor under the Loan Purchase and Contribution Agreement and the Residual
Securities Transfer Agreement, the Loan Originator hereby agrees and covenants
that in connection with each Disposition it shall effect the following:

                  (A) make such representations and warranties concerning the
Loans as of the "cut-off date" of the related Disposition to the Disposition
Participants as may be necessary to effect the Disposition and such additional
representations and warranties as may be necessary, in the reasonable opinion of
any of the Disposition Participants, to effect such Disposition; provided, that,
to the extent that the Loan Originator has at the time of the Disposition actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator may notify
the Disposition Participants of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty;

                  (B) supply such information, opinions of counsel, letters from
law and/or accounting firms and other documentation and certificates regarding
the origination of the Loans or the issuance of the Residual Securities as any
Disposition Participant shall reasonably request to effect a Disposition and
enter into such indemnification agreements customary for such

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<PAGE>

transaction relating to or in connection with the Disposition as the Disposition
Participants may reasonably require;

                  (C) make itself available for and engage in good faith
consultation with the Disposition Participants concerning information to be
contained in any document, agreement, private placement memorandum, or filing
with the Securities and Exchange Commission relating to the Loan Originator, the
Loans or the Residual Securities in connection with a Disposition and shall use
reasonable efforts to compile any information and prepare any reports and
certificates, into a form, whether written or electronic, suitable for inclusion
in such documentation;

                  (D) to implement the foregoing and to otherwise effect a
Disposition, enter into, or arrange for its Affiliates to enter into insurance
and indemnity agreements, underwriting or placement agreements, servicing
agreements, purchase agreements and any other documentation which may reasonably
be required of or reasonably deemed appropriate by the Disposition Participants
in order to effect a Disposition; and

                  (E) take such further actions as may be reasonably necessary
to effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan Originator
shall have no liability for the Loans or the Residual Securities arising from or
relating to the ongoing ability of the related Borrowers to pay under the Loans
or under the loans underlying the Residual Securities; (b) none of the
indemnities hereunder shall constitute an unconditional guarantee by the Loan
Originator of collectibility of the Loans or the Residual Securities; (c) the
Loan Originator shall have no obligation with respect to the financial inability
of any Borrower to pay principal, interest or other amount owing by such
Borrower under a Loan or under a loan underlying a Residual Security; and (d)
the Loan Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that to the
extent an Affiliate of the Initial Noteholder acts as "depositor" or performs a
similar function in a Securitization, additional indemnities and informational
representations and warranties are provided which are consistent with those in
the Basic Documents and may upon request of the Loan Originator be set forth in
a separate agreement between an Affiliate of the Initial Noteholder and the Loan
Originator.

                  (ii) In the event of any Disposition to the Loan Originator or
any of its Affiliates (except in connection with a Securitization or a
Disposition to a QSPE Affiliate), the purchase price paid by the Loan Originator
or any such Affiliate shall be the "fair market value" of the Loans or the
Residual Securities subject to such Disposition (as determined by the Market
Value Agent based upon recent sales of comparable loans or securities or such
other objective criteria as may be approved for determining "fair market value"
by a "Big Five" national accounting firm).

                  (iii) As long as no Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the Servicer
may continue to service the Loans included in any Disposition subject to any
applicable "term-to-term" servicing provisions in Section 9.01(c) and subject to
any required amendments to the related servicing provisions as

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<PAGE>

may be necessary to effect the related Disposition including but not limited to
the obligation to make recoverable principal and interest advances on the Loans.

            After the termination of the Revolving Period, the Loan Originator,
the Issuer and the Depositor shall use commercially reasonable efforts to effect
a Disposition at the direction of the Disposition Agent.

            (c) The Issuer shall effect Dispositions at the direction of the
Majority Noteholders in accordance with the terms of this Agreement and the
Basic Documents. In connection therewith, the Trust agrees to assist the Loan
Originator in such Dispositions and accordingly it shall, at the request and
direction of the Majority Noteholders:

                  (i) transfer, deliver and sell all or a portion of the Loans
or Residual Securities, as of the "cut-off dates" of the related Dispositions,
to such Disposition Participants as may be necessary to effect the Dispositions;
provided, that any such sale shall be for "fair market value," as determined by
the Market Value Agent in its reasonable discretion;

                  (ii) deposit the cash Disposition Proceeds into the
Distribution Account pursuant to Section 5.01(c)(2)(D);

                  (iii) to the extent that a Securitization creates any Retained
Securities, to accept such Retained Securities as a part of the Disposition
Proceeds in accordance with the terms of this Agreement; and

                  (iv) take such further actions, including executing and
delivering documents, certificates and agreements, as may be reasonably
necessary to effect such Dispositions.

            (d) The Servicer hereby covenants that it will take such actions as
may be reasonably necessary to effect Dispositions as the Disposition
Participants may request and direct, including without limitation providing the
Loan Originator such information as may be required to make representations and
warranties required hereunder, and covenants that it will make such
representations and warranties regarding its servicing of the Loans hereunder as
of the Cut-off Date of the related Disposition as reasonably required by the
Disposition Participants.

            (e) [reserved]

            (f) The Majority Noteholders may effect Whole Loan Sales upon
written notice to the Servicer of its intent to cause the Issuer to effect a
Whole Loan Sale at least 5 Business Days in advance thereof. The Disposition
Agent shall serve as agent for Whole Loan Sales and will receive a reasonable
fee for such services provided that no such fee shall be payable if (i) the Loan
Originator or its Affiliates purchase such Loans and (ii) no Event of Default or
Default shall have occurred. The Loan Originator or its Affiliates may
concurrently bid to purchase Loans in a Whole Loan Sale; provided, however, that
neither the Loan Originator nor any such Affiliates shall pay a price in excess
of the fair market value thereof (as determined by the Market Value Agent based
upon recent sales of comparable loans or such other objective criteria as may be
approved for determining "fair market value" by a "Big Five" national accounting
firm). In the event that the Loan Originator does not bid in any such Whole Loan

                                       52
<PAGE>

Sale, it shall have a right of first refusal to purchase the Loans offered for
sale at the price offered by the highest bidder. The Disposition Agent shall
conduct any Whole Loan Sale subject to the Loan Originator's right of first
refusal and shall promptly notify the Loan Originator of the amount of the
highest bid. The Loan Originator shall have five (5) Business Days following its
receipt of such notice to exercise its right of first refusal by notifying the
Disposition Agent in writing.

            (g) Except as otherwise expressly set forth under this Section 3.07,
the parties' rights and obligations under this Section 3.07 shall continue
notwithstanding the occurrence of an Event of Default.

            (h) The Disposition Participants (and the Majority Noteholders to
the extent directing the Disposition Participants) shall be independent
contractors to the Issuer and shall have no fiduciary obligations to the Issuer
or any of its Affiliates. In that connection, the Disposition Participants shall
not be liable for any error of judgment made in good faith and shall not be
liable with respect to any action they take or omits to take in good faith in
the performance of their duties.

      Section 3.08 Servicer Put; Servicer Call.

            (a) Servicer Put. The Servicer shall promptly purchase, upon the
written demand of the Majority Noteholders, any Put/Call Loan; provided,
however, that the Servicer may, upon receipt of such demand, elect to repurchase
such Put/Call Loan pursuant to (b) below, in which case such repurchase shall be
deemed a Servicer Call.

            (b) Servicer Call. The Servicer may repurchase any Put/Call Loan at
any time. Such Servicer Calls shall be solely at the option of the Servicer.
Prior to exercising a Servicer Call, the Servicer shall deliver written notice
to the Majority Noteholders and the Indenture Trustee which notice shall
identify each Loan to be purchased and the Repurchase Price therefor; provided,
however, that the Servicer may irrevocably waive its right to repurchase any
Put/Call Loan as soon as reasonably practicable following its receipt of notice
of the occurrence of any event or events giving rise to such Loan being a
Put/Call Loan.

            (c) In connection with each Servicer Put, the Servicer shall remit
for deposit into the Collection Account the Repurchase Price for the Loans to be
repurchased. In connection with each Servicer Call, the Servicer shall deposit
into the Collection Account the Repurchase Price for the Loans to be purchased.
The aggregate Repurchase Price of all Loans transferred pursuant to Section
3.08(a) shall in no event exceed the Unfunded Transfer Obligation at the time of
any Servicer Put.

      Section 3.09 Modification of Underwriting Guidelines.

      The Loan Originator shall give the Initial Noteholder prompt written
notification of any modification or change to the Underwriting Guidelines. If
the Noteholder objects in writing to any modification or change to the
Underwriting Guidelines within 15 days after receipt of such notice, no Loans
may be conveyed to the Issuer pursuant to this Agreement unless such Loans have
been originated pursuant to the Underwriting Guidelines without giving effect to
such modification or change. Notwithstanding anything contained in this
Agreement to the contrary,

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<PAGE>

any Loan conveyed to the Issuer pursuant to this Agreement pursuant to a
modification or change to the Underwriting Guidelines that has been rejected by
the Initial Noteholder or which the Initial Noteholder did not receive notice
of, such Loan shall be deemed an Unqualified Loan and be repurchased or
substituted for in accordance with Section 3.06.

                                   ARTICLE IV

                    ADMINISTRATION AND SERVICING OF THE LOANS

      Section 4.01 Servicer's Servicing Obligations.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with the terms and provisions set forth in
the Servicing Addendum, which Servicing Addendum is incorporated herein by
reference.

                                    ARTICLE V

              ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

      Section 5.01 Collection Account and Distribution Account.

            (a) (1) Establishment of Collection Account. The Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained one or
more Collection Accounts (collectively, the "Collection Account"), which shall
be separate Eligible Accounts entitled "Option One Owner Trust 2001-1A
Collection Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the
benefit of the Option One Owner Trust 2001-1A Mortgage-Backed Notes." The
Collection Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Collection Account shall be invested in accordance with Section 5.03
hereof. Net investment earnings shall not be considered part of funds available
in the Collection Account.

                  (2) Establishment of Distribution Account. The Servicer, for
the benefit of the Noteholders, shall cause to be established and maintained,
one or more Distribution Accounts (collectively, the "Distribution Account"),
which shall be separate Eligible Accounts, entitled "Option One Owner Trust
2001-1A Distribution Account, Wells Fargo Bank, N.A., as Indenture Trustee, for
the benefit of the Option One Owner Trust 2001-1A Mortgage-Backed Notes." The
Distribution Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Distribution Account shall be invested in accordance with Section 5.03
hereof. The Servicer may, at its option, maintain one account to serve as both
the Distribution Account and the Collection Account, in which case, the account
shall be entitled "Option One Owner Trust 2001-1A Collection/Distribution
Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of the
Option One Owner Trust 2001-1A Mortgage-Backed Notes." If the Servicer makes
such an election, all references herein or in any other Basic Document to either
the Collection Account or the Distribution Account shall mean the
Collection/Distribution Account described in the preceding sentence.

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<PAGE>

                  (3) The Servicer will inform the Indenture Trustee of the
location of any accounts held in the Indenture Trustee's name, including any
location to which an account is transferred.

            (b) Deposits to Collection Account. The Servicer shall deposit or
cause to be deposited (without duplication):

                  (i) all payments on or in respect of each Loan collected on or
after the related Transfer Cut- off Date or with respect to each Loan purchased
from a QSPE Affiliate, all such payments allocable to such Loan on or after the
related Transfer Date (net, in each case, of any Servicing Compensation retained
therefrom) within two (2) Business Days after receipt thereof;

                  (ii) all Net Liquidation Proceeds within two (2) Business Days
after receipt thereof;

                  (iii) all Mortgage Insurance Proceeds within two (2) Business
Days after receipt thereof;

                  (iv) all Released Mortgaged Property Proceeds within two (2)
Business Days after receipt thereof;

                  (v) any amounts payable in connection with the repurchase of
any Loan and the amount of any Substitution Adjustment pursuant to Sections 2.05
and 3.06 hereof concurrently with payment thereof;

                  (vi) any Repurchase Price payable in connection with a
Servicer Call pursuant to Section 3.08 hereof concurrently with payment thereof;

                  (vii) the deposit of the Termination Price under Section 10.02
hereof concurrently with payment thereof;

                  (viii) Nonutilization Fees;

                  (ix) [reserved];

                  (x) any payments received under Hedging Instruments or the
return of amounts by the Hedging Counterparty pledged pursuant to prior Hedge
Funding Requirements in accordance with the last sentence of this Section
5.01(b)(1); and

                  (xi) any Repurchase Price payable in connection with a
Servicer Put remitted by the Servicer pursuant to Section 3.08.

      Except as otherwise expressly provided in Section 5.01(c)(4)(i), the
Servicer agrees that it will cause the Loan Originator, Borrower or other
appropriate Person paying such amounts, as the case may be, to remit directly to
the Servicer for deposit into the Collection Account all amounts referenced in
clauses (i) through (xi) to the extent such amounts are in excess of a

                                       55
<PAGE>

Monthly Payment on the related Loan. To the extent the Servicer receives any
such amounts, it will deposit them into the Collection Account on the same
Business Day as receipt thereof.

            (c) Withdrawals From Collection Account; Deposits to Distribution
Account.

                  (1) Withdrawals From Collection Account -- Reimbursement
Items. The Paying Agent shall periodically but in any event on each
Determination Date, make the following withdrawals from the Collection Account
prior to any other withdrawals, in no particular order of priority:

                  (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error, including Servicing
Compensation;

                  (ii) to withdraw the Servicing Advance Reimbursement Amount;
and

                  (iii) to clear and terminate the Collection Account in
connection with the termination of this Agreement.

                  (2) Deposits to Distribution Account - Payment Dates.

                  (A) On the Business Day prior to each Payment Date, the Paying
Agent shall deposit into the Distribution Account such amounts as are required
from the Transfer Obligation Account pursuant to Sections 5.05(e), 5.05(f),
5.05(g) and 5.05(h).

                  (B) After making all withdrawals specified in Section
5.01(c)(1) above, on each Remittance Date, the Paying Agent (based on
information provided by the Servicer for such Payment Date), shall withdraw the
Monthly Remittance Amount (or, with respect to an additional Payment Date
pursuant to Section 5.01(c)(4)(ii), all amounts on deposit in the Collection
Account on such date up to the amount necessary to make the payments due on the
related Payment Date in accordance with Section 5.01(c)(3)) from the Collection
Account not later than 5:00 P.M., New York City time and deposit such amount
into the Distribution Account.

                  (C) On each Payment Date, the Servicer shall cause to be
deposited in the Distribution Account all payments on the Advance Note made on
or before such Payment Date and not previously distributed pursuant to Section
5.01(c)(3).

                  (D) The Servicer shall deposit or cause to be deposited in the
Distribution Account any cash Disposition Proceeds pursuant to Section 3.07. To
the extent the Servicer receives such amounts, it will deposit them into the
Distribution Account on the same Business Day as receipt thereof.

                  (E) On each Payment Date, the Servicer shall cause to be
deposited in the Distribution Account all payments on each Residual Security
made on or before such Payment Date.

                  (3) Withdrawals From Distribution Account -- Payment Dates. On
each Payment Date, to the extent funds are available in the Distribution
Account, the Paying Agent

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<PAGE>

(based on the information provided by the Servicer contained in the Servicer's
Remittance Report for such Payment Date) shall make withdrawals therefrom for
application in the following order of priority:

                  (i) to distribute on such Payment Date the following amounts
in the following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Payment
Dates and all amounts owing to the Indenture Trustee pursuant to Section 6.07 of
the Indenture and not paid by the Servicer or the Depositor up to an amount not
to exceed $25,000 per annum, (b) to the Custodian, an amount equal to the
Custodian Fee and all unpaid Custodian Fees from prior Payment Dates, (c) to the
Servicer, an amount equal to the Servicing Compensation and all unpaid Servicing
Compensation from prior Payment Dates (to the extent not retained from
collections or remitted to the Servicer pursuant to Section 5.01(c)) and (d) to
the Servicer, in trust for the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Payment Dates;

                  (ii) to distribute on such Payment Date, the Hedge Funding
Requirement to the appropriate Hedging Counterparties;

                  (iii) to the holders of the Notes pro rata, the sum of the
Interest Payment Amount for such Payment Date and the Interest Carry-Forward
Amount for the preceding Payment Date;

                  (iv) to the holders of the Notes pro rata, the
Overcollateralization Shortfall for such Payment Date; provided, however, that
if (a) a Rapid Amortization Trigger shall have occurred and not been Deemed
Cured or (b) an Event of Default under the Indenture or Default shall have
occurred, the holders of the Notes shall receive, in respect of principal, all
remaining amounts on deposit in the Distribution Account;

                  (v) to the Initial Noteholder, the Nonutilization Fee for such
Payment Date, together with any Nonutilization Fees unpaid from any prior
Payment Dates;

                  (vi) to the appropriate Person, amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) and Due
Diligence Fees until such amounts are paid in full;

                  (vii) to the Transfer Obligation Account, all remaining
amounts until the balance therein equals the Transfer Obligation Target Amount;

                  (viii) to the Indenture Trustee all amounts owing to the
Indenture Trustee pursuant to Section 6.07 of the Indenture and not paid
pursuant to clause (i) above;

                  (ix) all Nonrecoverable Servicing Advances not previously
reimbursed; and

                  (x) to the holders of the Trust Certificates, in accordance
with Section 5.2(b) of the Trust Agreement, all amounts remaining therein.

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<PAGE>

                  (4) (i) If the Loan Originator or the Servicer, as applicable,
repurchases, purchases or substitutes a Loan pursuant to Section 2.05, 3.06,
3.08(a), 3.08(b) or 3.08(c), then the Noteholders and the Issuer shall deem such
date to be an additional Payment Date and the Issuer shall provide written
notice to the Indenture Trustee and the Paying Agent of such additional Payment
Date at least one Business Day prior to such Payment Date. On such additional
Payment Date, the Loan Originator or the Servicer, in satisfaction of its
obligations under 2.05, 3.06, 3.08(a) 3.08(b) or 3.08(c) and in satisfaction of
the obligations of the Issuer and the Paying Agent to distribute such amounts to
the Noteholders pursuant to Section 5.01(c), shall remit to the Noteholders, on
behalf of the Issuer and the Paying Agent, an amount equal to the Repurchase
Prices and any Substitution Adjustments (as applicable) to be paid by the Loan
Originator or the Servicer by 12:00 p.m. New York City time, as applicable,
under such Section, on such Payment Date, and the Note Principal Balance will be
reduced accordingly. Such amounts shall be deemed deposited into the Collection
Account and the Distribution Account, as applicable, and such amounts will be
deemed distributed pursuant to the terms of Section 5.01(c). Upon notice of an
additional Payment Date to the Paying Agent and the Indenture Trustee as
provided above, the Paying Agent shall provide the Loan Originator or the
Servicer (as applicable) information necessary so that remittances to the
Noteholders pursuant to this clause (4)(i) may be made by the Loan Originator or
the Servicer, as applicable, in compliance with Section 5.02(a) hereof.

                        (ii) To the extent that there is deposited in the
Collection Account or the Distribution Account any amounts referenced in Section
5.01(b)(1)(vii) and 5.01(c)(2)(D), the Majority Noteholders and the Issuer may
agree, upon reasonable written notice to the Paying Agent and the Indenture
Trustee, to additional Payment Dates. The Issuer and the Majority Noteholder
shall give the Paying Agent and the Indenture Trustee at least one (1) Business
Day's written notice prior to such additional Payment Date and such notice shall
specify each amount in Section 5.01(c) to be withdrawn from the Collection
Account and Distribution Account on such day.

                        (iii) To the extent that there is deposited in the
Distribution Account any amounts referenced in Section 5.05(f), the Majority
Noteholders may, in their sole discretion, establish an additional Payment Date
by written notice delivered to the Paying Agent and the Indenture Trustee at
least one Business Day prior to such additional Payment Date. On such additional
Payment Date, the Paying Agent shall pay the sum of the Overcollateralization
Shortfall to the Noteholders in respect of principal on the Notes.

            Notwithstanding that the Notes have been paid in full, the Indenture
Trustee, the Paying Agent and the Servicer shall continue to maintain the
Distribution Account hereunder until this Agreement has been terminated.

      Section 5.02 Payments to Securityholders.

            (a) All distributions made on the Notes on each Payment Date or
pursuant to Section 5.04(b) of the Indenture will be made on a pro rata basis
among the Noteholders of record of the Notes on the next preceding Record Date
based on the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of

                                       58
<PAGE>

immediately available funds to the account of such Noteholder, if such
Noteholder shall own of record Notes having a Percentage Interest (as defined in
the Indenture) of at least 20% and shall have so notified the Paying Agent and
the Indenture Trustee 5 Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final distribution on each Note will be made in like manner,
but only upon presentment and surrender of such Note at the location specified
in the notice to Noteholders of such final distribution.

            (b) All distributions made on the Trust Certificates on each Payment
Date or pursuant to Section 5.04(b) of the Indenture will be made in accordance
with the Percentage Interest among the holders of the Trust Certificates of
record on the next preceding Record Date based on their Percentage Interests (as
defined in the Trust Agreement) on the date of distribution, without preference
or priority of any kind, and, except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of each such holder, if such holder shall own of record a
Trust Certificate in an original denomination aggregating at least 25% of the
Percentage Interests and shall have so notified the Paying Agent and the
Indenture Trustee 5 Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Certificateholder appearing in
the Certificate Register. The final distribution on each Trust Certificate will
be made in like manner, but only upon presentment and surrender of such Trust
Certificate at the location specified in the notice to holders of the Trust
Certificates of such final distribution. Any amount distributed to the holders
of the Trust Certificates on any Payment Date shall not be subject to any claim
or interest of the Noteholders. In the event that at any time there shall be
more than one Certificateholder, the Indenture Trustee shall be entitled to
reasonable additional compensation from the Servicer for any increase in its
obligations hereunder.

      Section 5.03 Trust Accounts; Trust Account Property.

            (a) Control of Trust Accounts. Each of the Trust Accounts
established hereunder has been pledged by the issuer to the Indenture Trustee
under the Indenture and shall be subject to the lien of the Indenture. Amounts
distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the
Trust Estate upon such distribution thereunder or hereunder. The Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and
income shall be part of the Trust Account Property and the Trust Estate. If, at
any time, any Trust Account ceases to be an Eligible Account, the Indenture
Trustee shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, with the prior written consent of the Majority Noteholders) (i)
establish a new Trust Account as an Eligible Account, (ii) terminate the
ineligible Trust Account, and (iii) transfer any cash and investments from such
ineligible Trust Account to such new Trust Account.

            With respect to the Trust Accounts, the Issuer and the Indenture
Trustee agree, that each such Trust Account shall be subject to the sole and
exclusive dominion, custody and control of the Indenture Trustee for the benefit
of the Noteholders, and, except as may be

                                       59
<PAGE>

consented to in writing by the Majority Noteholders, the Indenture Trustee shall
have sole signature and withdrawal authority with respect thereto.

            The Servicer (unless it is also the Paying Agent) shall not be
entitled to make any withdrawals or payments from the Trust Accounts.

            (b) (1) Investment of Funds. Funds held in the Collection Account,
the Distribution Account and the Transfer Obligation Account may be invested (to
the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Servicer prior to the occurrence of an
Event of Default and by the Majority Noteholders thereafter, in writing or
facsimile transmission confirmed in writing by the Servicer or Majority
Noteholders, as applicable. In the event the Indenture Trustee has not received
such written direction, such Funds shall be invested in any Permitted Investment
described in clause (i) of the definition of Permitted Investments. In any case,
funds in the Collection Account, the Distribution Account and the Transfer
Obligation Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, one
Business Day prior to the next Payment Date and shall not be sold or disposed of
prior to its maturity subject to Subsection (b)(2) of this Section. All interest
and any other investment earnings on amounts or investments held in the
Collection Account, the Distribution Account and the Transfer Obligation Account
shall be paid to the Servicer immediately upon receipt by the Indenture Trustee.
All Permitted Investments in which funds in the Collection Account, the
Distribution Account or the Transfer Obligation Account are invested must be
held by or registered in the name of "Wells Fargo Bank, N.A., as Indenture
Trustee, in trust for the Option One Owner Trust 2001-1A Mortgage-Backed Notes."

                  (2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from the Collection Account, the Distribution
Account or the Transfer Obligation Account held by or on behalf of the Indenture
Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in the Collection
Account, the Distribution Account or the Transfer Obligation Account, as the
case may be. The Indenture Trustee shall not be liable for any investment loss
or other charge resulting therefrom, unless such loss or charge is caused by the
failure of the Indenture Trustee to perform in accordance with written
directions provided pursuant to this Section 5.03.

            If any losses are realized in connection with any investment in the
Collection Account, the Distribution Account or the Transfer Obligation Account
pursuant to this Agreement during a period in which the Servicer has the right
to direct investments pursuant to Section 5.03(b), then the Servicer shall
deposit the amount of such losses (to the extent not offset by income from other
investments in the Collection Account, the Distribution Account or the Transfer
Obligation Account, as the case may be) into the Collection Account, the
Distribution Account or the Transfer Obligation Account, as the case may be,
immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in the Collection Account, the Distribution
Account and the Transfer Obligation Account shall be taxed to the Issuer and for
federal and state income tax purposes the Issuer shall be deemed to be the owner
of the Collection Account, the Distribution Account and/or the Transfer
Obligation Account, as the case may be.

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            (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.

            (d) With respect to the Trust Account Property, the Indenture
Trustee acknowledges and agrees that:

                  (1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to the last
sentence of Subsection (a) of this Section 5.03; and each such Eligible Account
shall be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;

                  (2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraphs (a) and (b) of the definition of "Delivery" in Section 1.01 hereof
and shall be held, pending maturity or disposition, solely by the Indenture
Trustee or a securities intermediary (as such term is defined in Section
8-102(a)(14) of the UCC) acting solely for the Indenture Trustee;

                  (3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" in Section 1.01 hereof and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such paragraph; and

                  (4) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (3)
above shall be delivered to the Indenture Trustee in accordance with paragraph
(d) of the definition of "Delivery" in Section 1.01 hereof and shall be
maintained by the Indenture Trustee, pending maturity or disposition, through
continued registration of the Indenture Trustee's (or its nominee's) ownership
of such security.

      Section 5.04 Advance Account.

            (a) The Servicer shall cause to be established and maintained in its
name, an Advance Account (the "Advance Account"), which need not be a segregated
account. The Advance Account shall be maintained with any financial institution
the Servicer elects.

            (b) Deposits and Withdrawals. Amounts in respect of the transfer of
Additional Note Principal Balances purchased on Transfer Dates related to Loans
and Residual Securities shall be deposited in and withdrawn from the Advance
Account as provided in Sections 2.01 (c) and 2.06 hereof and Section 3.01 of the
Note Purchase Agreement.

      Section 5.05 Transfer Obligation Account.

            (a) The Servicer, for the benefit of the Noteholders, shall cause to
be established and maintained in the name of the Indenture Trustee a Transfer
Obligation Account (the "Transfer Obligation Account"), which shall be a
separate Eligible Account and may be

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interest-bearing, entitled "Option One Owner Trust 2001-1A Transfer Obligation
Account, Wells Fargo Bank, N.A., as Indenture Trustee, in trust for the Option
One Owner Trust 2001-1A Mortgage-Backed Notes." The Indenture Trustee shall have
no monitoring or calculation obligation with respect to withdrawals from the
Transfer Obligation Account. Amounts in the Transfer Obligation Account shall be
invested in accordance with Section 5.03.

            (b) In accordance with Section 5.06, the Loan Originator shall
deposit into the Transfer Obligation Account any amounts as may be required
thereby.

            (c) On each Payment Date, the Paying Agent will deposit in the
Transfer Obligation Account any amounts required to be deposited therein
pursuant to Section 5.01(c)(3)(vii).

            (d) On the date of each Disposition, the Paying Agent shall withdraw
from the Transfer Obligation Account such amount on deposit therein in respect
of the payment of Transfer Obligations as may be requested by the Disposition
Agent in writing to effect such Disposition.

            (e) On each Payment Date, the Paying Agent shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account and (y) the Interest Carry-Forward Amount as of such date.

            (f) If with respect to any Business Day there exists an
Overcollateralization Shortfall, the Paying Agent, upon the written direction of
the Initial Noteholder, shall withdraw from the Transfer Obligation Account and
deposit into the Distribution Account on such Business Day the lesser of (x) the
amount then on deposit in the Transfer Obligation Account and (y) the amount of
such Overcollateralization Shortfall as of such date.

            (g) If with respect to any Payment Date there shall exist a Hedge
Funding Requirement, the Paying Agent, upon the written direction of the
Servicer or the Initial Noteholder, shall withdraw from the Transfer Obligation
Account and deposit into the Distribution Account on the Business Day prior to
such Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account (after making all other required withdrawals therefrom with
respect to such Payment Date) and (y) the amount of such Hedge Funding
Requirement as of such date.

            (h) In the event of the occurrence of an Event of Default under the
Indenture, the Paying Agent shall withdraw all remaining funds from the Transfer
Obligation Account and apply such funds in satisfaction of the Notes as provided
in Section 5.04(b) of the Indenture.

            (i) The Paying Agent shall return to the Loan Originator all amounts
on deposit in the Transfer Obligation Account (after making all other
withdrawals pursuant to this Section 5.05) until the Majority Noteholders
provide written notice to the Indenture Trustee (with a copy to the Loan
Originator and the Servicer) of the occurrence of a default or event of default
(however defined) under any Basic Document with respect to the Issuer, the
Depositor, the Loan Originator or any of their Affiliates and (ii) upon the date
of the termination of this

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Agreement pursuant to Article X, the Paying Agent shall withdraw any remaining
amounts from the Transfer Obligation Account and remit all such amounts to the
Loan Originator.

      Section 5.06 Transfer Obligation.

            (a) In consideration of the transactions contemplated by the Basic
Documents, the Loan Originator agrees and covenants with the Depositor that:

                  (i) In connection with each Disposition it shall fund, or
cause to be funded, reserve funds, pay credit enhancer fees, pay, or cause to be
paid, underwriting fees, fund any difference between the cash Disposition
Proceeds and the aggregate Note Principal Balance at the time of such
Disposition, and make, or cause to be made, such other payments as may be, in
the reasonable opinion of the Disposition Agent, commercially reasonably
necessary to effect Dispositions, in each case to the extent that Disposition
Proceeds are insufficient to pay such amounts;

                  (ii) In connection with Hedging Instruments, on the Business
Day prior to each Payment Date, it shall deliver to the Servicer for deposit
into the Transfer Obligation Account any Hedge Funding Requirement (to the
extent amounts available on the related Payment Date pursuant to Section 5.01
are insufficient to make such payment), when, as and if due to any Hedging
Counterparty;

                  (iii) if any Interest Carry-Forward Amount shall occur, it
shall deposit into the Transfer Obligation Account any such Interest
Carry-Forward Amount on or before the Business Day preceding such related
Payment Date;

                  (iv) If on any Business Day there exists an
Overcollateralization Shortfall, upon the written direction of the Initial
Noteholder, it shall on such Business Day deposit into the Transfer Obligation
Account the full amount of the Overcollateralization Shortfall as of such date,
provided, that in the event that notice of such Overcollateralization Shortfall
is provided to the Loan Originator after 3:00 p.m. New York City time, the Loan
Originator shall make such deposit on the following Business Day; and

                  (v) Notwithstanding anything to the contrary herein, in the
event of the occurrence of an Event of Default under the Indenture, the Loan
Originator shall promptly deposit into the Transfer Obligation Account the
entire amount of the Unfunded Transfer Obligation;

provided, that notwithstanding anything to the contrary contained herein, the
Loan Originator's cumulative payments under or in respect of the Transfer
Obligations (after subtracting therefrom any amounts returned to the Loan
Originator pursuant to Section 5.05(i)(i)) together with the Servicer's payments
in respect of any Servicer Puts shall not in the aggregate exceed the Unfunded
Transfer Obligation.

            (b) The Loan Originator agrees that the Noteholders, as ultimate
assignee of the rights of the Depositor under this Agreement and the other Basic
Documents, may enforce the rights of the Depositor directly against the Loan
Originator.

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                                   ARTICLE VI

              STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

      Section 6.01 Statements.

            (a) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall deliver to the Indenture Trustee and the Initial
Noteholder by electronic transmission, the receipt and legibility of which shall
be confirmed by telephone, and with hard copy thereof to be delivered no later
than one (1) Business Day after such Remittance Date, the Servicer's Remittance
Report, setting forth the date of such Report (day, month and year), the name of
the Issuer (i.e., "Option One Owner Trust 2001-1A"), and the date of this
Agreement, all in substantially the form set out in Exhibit B hereto.
Furthermore, on each Remittance Date, the Servicer shall deliver to the
Indenture Trustee and the Initial Noteholder a data file providing, with respect
to each Loan in the Loan Pool as of the last day of the related Remittance
Period (i) if such Loan is an ARM, the current Loan Interest Rate; (ii) the
Principal Balance with respect to such Loan; (iii) the date of the last Monthly
Payment paid in full; and (iv) such other information as may be reasonably
requested by the Initial Noteholder and the Indenture Trustee. In addition, no
later than 12:00 noon (New York City time) on the 15th day of each calendar
month (or if such day is not a Business Day, the preceding Business Day), the
Custodian shall prepare and provide to the Servicer and the Indenture Trustee by
facsimile, the Custodian Fee Notice for the Payment Date falling in such
calendar month.

            (b) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall prepare (or cause to be prepared) and provide to the
Indenture Trustee electronically or via fax, receipt confirmed by telephone, the
Initial Noteholder and each Noteholder, a statement (the "Payment Statement"),
stating each date and amount of a purchase of Additional Note Principal Balance
(day, month and year), the name of the Issuer (i.e., "Option One Owner Trust
2001-1A"), the date of this Agreement and the following information:

                  (1) the aggregate amount of collections in respect of
principal of the Loans received by the Servicer during the preceding Remittance
Period;

                  (2) the aggregate amount of collections in respect of interest
on the Loans received by the Servicer during the preceding Remittance Period;

                  (3) all Mortgage Insurance Proceeds received by the Servicer
during the preceding Remittance Period and not required to be applied to
restoration or repair of the related Mortgaged Property or returned to the
Borrower under applicable law or pursuant to the terms of the applicable
Mortgage Insurance Policy;

                  (4) all Net Liquidation Proceeds deposited by the Servicer
into the Collection Account during the preceding Remittance Period;

                  (5) all Released Mortgaged Property Proceeds deposited by the
Servicer into the Collection Account during the preceding Remittance Period;

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<PAGE>

                  (6) the aggregate amount of all Servicing Advances made by the
Servicer during the preceding Remittance Period;

                  (7) the aggregate of all amounts deposited into the
Distribution Account in respect of the repurchase of Unqualified Loans and the
repurchase of Loans pursuant to Section 2.05 hereof during the preceding
Remittance Period;

                  (8) the aggregate Principal Balance of all Loans for which a
Servicer Call was exercised during the preceding Remittance Period;

                  (9) the aggregate Principal Balance of all Loans for which a
Servicer Put was exercised during the preceding Remittance Period;

                  (10) the aggregate amount of all payments received under
Hedging Instruments during the preceding Remittance Period;

                  (11) the aggregate amount of all withdrawals from the
Distribution Account pursuant to Section 5.01(c)(1)(i) hereof during the
preceding Remittance Period;

                  (12) the aggregate amount of cash Disposition Proceeds
received during the preceding Remittance Period;

                  (13) withdrawals from the Collection Account in respect of the
Servicing Advance Reimbursement Amount with respect to the related Payment Date;

                  (14) [reserved];

                  (15) the number and aggregate Principal Balance of all Loans
that are (i) 30-59 days Delinquent, (ii) 60- 89 days Delinquent, (iii) 90 or
more days Delinquent as of the end of the related Remittance Period;

                  (16) the aggregate amount of Liquidated Loan Losses incurred
(i) during the preceding Remittance Period, and (ii) during the preceding three
Remittance Periods;

                  (17) the aggregate of the Principal Balances of all Loans in
the Loan Pool as of the end of the related Remittance Period;

                  (18) the aggregate amount of all deposits into the
Distribution Account from the Transfer Obligation Account pursuant to Sections
5.05(e), 5.05(f), 5.05(g), and 5.05(h) on the related Payment Date;

                  (19) the aggregate amount of distributions in respect of
Servicing Compensation to the Servicer, and unpaid Servicing Compensation from
prior Payment Dates for the related Payment Date;

                  (20) the aggregate amount of distributions in respect of
Indenture Trustee Fees and unpaid Indenture Trustee Fees from prior Payment
Dates for the related Payment Date;

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<PAGE>

                  (21) the aggregate amount of distributions in respect of the
Custodian Fee and unpaid Custodian Fees from prior Payment Dates for the related
Payment Date;

                  (22) the aggregate amount of distributions in respect of the
Owner Trustee Fees and unpaid Owner Trustee Fees from prior Payment Dates and
for the related Payment Date;

                  (23) the Unfunded Transfer Obligation and
Overcollateralization Shortfall on such Payment Date for the related Payment
Date;

                  (24) the aggregate amount of distributions to the Transfer
Obligation Account for the related Payment Date;

                  (25) the aggregate amount of distributions in respect of
Trust/Depositor Indemnities for the related Payment Date;

                  (26) the aggregate amount of distributions to the holders of
the Trust Certificates for the related Payment Date;

                  (27) the Note Principal Balance of the Notes as of the last
day of the related Remittance Period (without taking into account any Additional
Note Principal Balance between the last day of such Remittance Period and the
related Payment Date) before and after giving effect to distributions made to
the holders of the Notes for such Payment Date;

                  (28) the Pool Principal Balance as of the end of the preceding
Remittance Period; and

                  (29) whether a Performance Trigger or a Rapid Amortization
Trigger shall exist with respect to such Payment Date.

Such Payment Statement shall also be provided on the Remittance Date to the
Initial Noteholder and Indenture Trustee in the form of a data file in a form
mutually agreed to by and between the Initial Noteholder, the Indenture Trustee
and the Servicer. The Indenture Trustee shall have no duty to monitor the
occurrence of a Performance Trigger, Rapid Amortization Trigger or any events
resulting in withdrawals from the Transfer Obligation Account.

      Section 6.02 Specification of Certain Tax Matters.

      The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient. Any
amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of this
Agreement. The Indenture Trustee shall have no responsibility for preparing or
filing any tax returns.

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<PAGE>

      Section 6.03 Valuation of Loans and Residual Securities, Hedge Value and
Retained Securities Value; Market Value Agent.

            (a) The Initial Noteholder hereby irrevocably appoints, and the
Issuer hereby consents to the appointment of, the Market Value Agent as agent on
behalf of the Noteholders to determine the Market Value of each Loan and
Residual Security, the Hedge Value of each Hedging Instrument and the Retained
Securities Value of all Retained Securities.

            (b) Except as otherwise set forth in Section 3.07, the Market Value
Agent shall determine the Market Value of each Loan and Residual Security, for
the purposes of the Basic Documents, in its sole judgment, exercised in good
faith. In determining the Market Value of each Loan and Residual Security, the
Market Value Agent may consider any information that it may deem relevant and
shall base such determination primarily on the lesser of its estimate of the
projected proceeds from such Loan's or Residual Security's inclusion in (i) a
Securitization (inclusive of the projected Retained Securities Value of any
Retained Securities to be issued in connection with such Securitization) and
(ii) a Whole Loan Sale, in each case net of such Loan's ratable share of all
costs and fees associated with such Disposition, including, without limitation,
any costs of issuance, sale, underwriting and funding reserve accounts. The
Market Value Agent's determination, in its sole judgment, of Market Value shall
be conclusive and binding upon the parties hereto, absent manifest error
(including without limitation, any error contemplated in Section 2.08).

            (c) On each Business Day the Market Value Agent shall determine in
its sole judgment, exercised in good faith, the Hedge Value of each Hedging
Instrument as of such Business Day. In making such determination the Market
Value Agent may rely exclusively on quotations provided by the Hedging
Counterparty, by leading dealers in instruments similar to such Hedging
Instrument, which leading dealers may include the Market Value Agent and its
Affiliates and such other sources of information as the Market Value Agent may
deem appropriate.

            (d) On each Business Day, the Market Value Agent shall determine in
its sole judgment, exercised in good faith, the Retained Securities Value of the
Retained Securities, if any, expected to be issued pursuant to such
Securitization as of the closing date of such Securitization. In making such
determination the Market Value Agent may rely exclusively on quotations provided
by leading dealers in instruments similar to such Retained Securities, which
leading dealers may include the Market Value Agent and its Affiliates and such
other sources of information as the Market Value Agent may deem appropriate.

                                  ARTICLE VII

                          HEDGING; FINANCIAL COVENANTS

      Section 7.01 Hedging Instruments.

            (a) On each Transfer Date, the Trust shall enter into such Hedging
Instruments as the Market Value Agent, on behalf of the Majority Noteholders,
shall determine are necessary in order to hedge the interest rate risk with
respect to the Collateral Value of the

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<PAGE>

Loans being purchased on such Transfer Date. The Market Value Agent shall
determine, in its sole discretion, whether any Hedging Instrument conforms to
the requirements of Section 7.01(b), (c) and (d).

            (b) Each Hedging Instrument shall expressly provide that in the
event of a Disposition or other removal of the Loan from the Trust, such portion
of the Hedging Instrument shall terminate as the Disposition Agent deems
appropriate to facilitate the hedging of the risks specified in Section 7.01(a).
In the event that the Hedging Instrument is not otherwise terminated, it shall
contain provisions that allow the position of the Trust to be assumed by an
Affiliate of the Trust upon the liquidation of the Trust. The terms of the
assignment documentation and the credit quality of the successor to the Trust
shall be subject to the Hedging Counterparty's approval.

            (c) Any Hedging Instrument that provides for any payment obligation
on the part of the Issuer must (i) be without recourse to the assets of the
Issuer, (ii) contain a non-petition covenant provision in the form of Section
11.13, (iii) limit payment dates thereunder to Payment Dates and (iv) contain a
provision limiting any cash payments due on any day under such Hedging
Instrument solely to funds available therefor in the Collection Account on such
day pursuant to Section 5.01(c)(3)(ii) hereof and funds available therefor in
the Transfer Obligation Account.

            (d) Each Hedging Instrument must (i) provide for the direct payment
of any amounts thereunder to the Collection Account pursuant to Section
5.01(b)(1)(x), (ii) contain an assignment of all of the Issuer's rights (but
none of its obligations) under such Hedging Instrument to the Indenture Trustee
and shall include an express consent to the Hedging Counterparty to such
assignment, (iii) provide that in the event of the occurrence of an Event of
Default, such Hedging Instrument shall terminate upon the direction of the
Majority Noteholders, (iv) prohibit the Hedging Counterparty from "setting-off"
or "netting" other obligations of the Issuer or its Affiliates against such
Hedging Counterparty's payment obligations thereunder, (v) provide that the
appropriate portion of the Hedging Instrument will terminate upon the removal of
the related Loans from the Trust Estate and (vi) have economic terms that are
fixed and not subject to alteration after the date of assumption or execution.

            (e) If agreed to by the Majority Noteholders, the Issuer may pledge
its assets in order to secure its obligations in respect of Hedge Funding
Requirements, provided that such right shall be limited solely to Hedging
Instruments for which an Affiliate of the Initial Noteholder is a Hedging
Counterparty.

            (f) The aggregate notional amount of all Hedging Instruments shall
not exceed the Note Principal Balance as of the date on which each Hedging
Instrument is entered into by the Issuer and a Hedging Counterparty.

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      Section 7.02 Financial Covenants.

      Each of the Loan Originator and the Servicer shall satisfy the Financial
Covenants.

                                  ARTICLE VIII

                                  THE SERVICER

      Section 8.01 Indemnification; Third Party Claims.

            (a) The Servicer shall indemnify the Loan Originator, the Owner
Trustee, the Trust, the Depositor, the Indenture Trustee and the Noteholders,
their respective officers, directors, employees, agents and "control persons,"
as such term is used under the Act and under the Securities Exchange Act of 1934
as amended (each a "Servicer Indemnified Party") and hold harmless each of them
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and other costs and expenses
resulting from any claim, demand, defense or assertion based on or grounded
upon, or resulting from, a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Loans in
compliance with the terms of this Agreement except to the extent such loss
arises out of such Servicer Indemnified Party's gross negligence or willful
misconduct; provided, however, that if the Servicer is not liable pursuant to
the provisions of Section 8.01(b) hereof for its failure to perform its duties
and service the Loans in compliance with the terms of this Agreement, then the
provisions of this Section 8.01 shall have no force and effect with respect to
such failure.

            (b) None of the Loan Originator, the Depositor or the Servicer or
any of their respective Affiliates, directors, officers, employees or agents
shall be under any liability to the Owner Trustee, the Issuer, the Indenture
Trustee or the Securityholders for any action taken, or for refraining from the
taking of any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates,
directors, officers, employees, agents against the remedies provided herein for
the breach of any warranties, representations or covenants made herein, or
against any expense or liability specifically required to be borne by such party
without right of reimbursement pursuant to the terms hereof, or against any
expense or liability which would otherwise be imposed by reason of misfeasance,
bad faith or negligence in the performance of the respective duties of the
Servicer, the Depositor or the Loan Originator, as the case may be. The Loan
Originator, the Depositor, the Servicer and any of their respective Affiliates,
directors, officers, employees, agents may rely in good faith on any document of
any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.

            (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor and the Noteholders, as the ultimate assignees from the Depositor
(each an "Originator Indemnified Party," together with the Servicer Indemnified
Parties, the "Indemnified Parties"), from and against any loss, liability,
expense, damage, claim or injury arising out of or based on (i) any breach of
any representation, warranty or covenant of the Loan Originator, the Servicer or

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<PAGE>

their Affiliates, in any Basic Document, including, without limitation, the
origination or prior servicing of the Loans by reason of any acts, omissions, or
alleged acts or omissions arising out of activities of the Loan Originator, the
Servicer or their Affiliates, and (ii) any untrue statement by the Loan
Originator, the Servicer or its Affiliates of any material fact or any such
Person's failure to state a material fact necessary to make such statements not
misleading with respect to any such Person's statements contained in any Basic
Document, including, without limitation, any Officer's Certificate, statement,
report or other document or information prepared by any such Person and
furnished or to be furnished by it pursuant to or in connection with the
transactions contemplated thereby and not corrected prior to completion of the
relevant transaction including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the Loans or any such Person's business,
operations or financial condition, including reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Loan Originator shall
not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due to either an Originator Indemnified
Party's willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party's reckless disregard of its obligations hereunder;
provided, further, that the Loan Originator shall not be so required to
indemnify an Originator Indemnified Party or to otherwise be liable to an
Originator Indemnified Party for any losses in respect of the performance of the
Loans or Residual Securities, the creditworthiness of the Borrowers under the
Loans, changes in the market value of the Loans or Residual Securities or other
similar investment risks associated with the Loans or Residual Securities
arising from a breach of any representation or warranty set forth in Exhibit E
hereto or Section 3 of the Residual Securities Transfer Agreement, as
applicable, a remedy for the breach of which is provided in Section 3.06 hereof.
The provisions of this indemnity shall run directly to and be enforceable by an
Originator Indemnified Party subject to the limitations hereof.

            (d) With respect to a claim subject to indemnity hereunder made by
any Person against an Indemnified Party (a "Third Party Claim"), such
Indemnified Party shall notify the related indemnifying parties (each an
"Indemnifying Party") in writing of the Third Party Claim within a reasonable
time after receipt by such Indemnified Party of written notice of the Third
Party Claim unless the Indemnifying Parties shall have previously obtained
actual knowledge thereof. Thereafter, the Indemnified Party shall deliver to the
Indemnifying Parties, within a reasonable time after the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim. No failure
to give such notice or deliver such documents shall effect the rights to
indemnity hereunder. Each Indemnifying Party shall promptly notify the Indenture
Trustee and the Indemnified Party (if other than the Indenture Trustee) of any
claim of which it has been notified and shall promptly notify the Indenture
Trustee and the Indemnified Party (if applicable) of its intended course of
action with respect to any claim.

            (e) If a Third Party Claim is made against an Indemnified Party,
while maintaining control over its own defense, the Indemnified Party shall
cooperate and consult fully with the Indemnifying Party in preparing such
defense, and the Indemnified Party may defend the same in such manner as it may
deem appropriate, including settling such claim or litigation after giving
notice to the Indemnifying Party of such terms and the Indemnifying Party will
promptly reimburse the Indemnified Party upon written request; provided,
however, that the

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<PAGE>

Indemnified Party may not settle any claim or litigation without the consent of
the Indemnifying Party; provided, further, that the Indemnifying Party shall
have the right to reject the selection of counsel by the Indemnified Party if
the Indemnifying Party reasonably determines that such counsel is inappropriate
in light of the nature of the claim or litigation and shall have the right to
assume the defense of such claim or litigation if the Indemnifying Party
determines that the manner of defense of such claim or litigation is
unreasonable.

      Section 8.02 Merger or Consolidation of the Servicer.

      The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

      Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the issuer.

      Section 8.03 Limitation on Liability of the Servicer and Others.

      The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 8.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.

      Section 8.04 Servicer Not to Resign; Assignment.

      The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Majority Noteholders or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee and the Majority Noteholders. No resignation
of the Servicer shall become effective until a successor servicer, appointed
pursuant to the provisions of Section 9.02 hereof shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.

      Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or

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authorize or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by the Servicer hereunder and any agreement,
instrument or act purporting to effect any such assignment, transfer, delegation
or appointment shall be void.

      The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Loan Files in the possession of the Servicer) and all amounts
received with respect to the Loans and not otherwise permitted to be retained by
the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole
cost and expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Loan Files in its possession
and do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities.

      Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee.

      The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the issuer, the Owner Trustee or the Indenture Trustee.

      Section 8.06 Servicer May Own Securities.

      Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is
a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder. Securities
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement unless the Servicer or such
Affiliate owns all outstanding Securities of the related class. The Servicer
shall notify the Indenture Trustee promptly after it or any of its Affiliates
becomes the owner or pledgee of a Security.

      Section 8.07 Indemnification of the Indenture Trustee and Initial
Noteholder.

      The Servicer agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. The Servicer agrees to indemnify the Initial Noteholder in
accordance with Section 9.01 of the Note Purchase Agreement as if it were
signatory thereto.

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                                   ARTICLE IX

                           SERVICER EVENTS OF DEFAULT

      Section 9.01 Servicer Events of Default.

            (a) In case one or more of the following Servicer Events of Default
shall occur and be continuing, that is to say:

                  (1) any failure by Servicer to deposit into the Collection
Account or the Distribution Account or any failure by Servicer to make any of
the required payments therefrom; or

                  (2) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the material covenants or
agreements on the part of the Servicer, contained in any Basic Document to which
it is a party, which continues unremedied for a period of 30 days (or, in the
case of payment of insurance premiums, for a period of 15 days) after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by any other party hereto or to the
Servicer (with copy to each other party hereto), by Holders of 25% of the
Percentage Interests of the Notes or the Trust Certificates; or

                  (3) any breach on the part of the Servicer of any
representation or warranty contained in any Basic Document to which it is a
party that materially and adversely affects the interests of any of the parties
hereto or any Securityholder and which continues unremedied for a period of 30
days after the date on which notice of such breach, requiring the same to be
remedied, shall have been given to the Servicer by any other party hereto or to
the Servicer (with copy to each other party hereto), by the Initial Noteholder
or Holders of 25% of the Percentage Interests (as defined in the Indenture) of
the Notes; or

                  (4) there shall have been commenced before a court or agency
or supervisory authority having jurisdiction in the premises an involuntary
proceeding against the Servicer under any present or future federal or state
bankruptcy, insolvency or similar law for the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, which action
shall not have been dismissed for a period of 60 days; or

                  (5) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to it or of or relating to all
or substantially all of its property; or

                  (6) the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an assignment
for the benefit of its creditors, voluntarily suspend payment of its
obligations, or take any corporate action in furtherance of the foregoing; or

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                  (7) Reserved; or

                  (8) the Servicer or the Loan Originator fails to comply with
any of its financial covenants set forth in Section 7.02; or

                  (9) a Change of Control of the Servicer; or

                  (10) so long as the Servicer or the Loan Originator is an
Affiliate of either of the Depositor or the Issuer and any "event of default' by
any such party occurs under any of the Basic Documents.

            (b) Then, and in each and every such case, so long as a Servicer
Event of Default shall not have been remedied, the Indenture Trustee or the
Majority Noteholders, by notice in writing to the Servicer may, in addition to
whatever rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, may terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Loans and the
proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Loans or otherwise, shall, subject to
Section 9.02 hereof, pass to and be vested in a successor servicer, and the
successor servicer is hereby authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and do or cause to be done all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
including, but not limited to, the transfer and endorsement or assignment of the
Loans and related documents. The Servicer agrees to cooperate with the successor
servicer in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Loans.

            (c) Upon the occurrence of (i) an Event of Default or Default under
any of the Basic Documents, (ii) a Servicer Event of Default under this
Agreement, (iii) a Rapid Amortization Trigger or (iv) a determination,
reasonably made by the Initial Noteholder, that an event has occurred that shall
materially impair the ability of the Servicer to service and administer the
Loans in accordance with the terms and provisions set forth in the Servicing
Addendum (each, a "Term Event"), the Servicer's right to service the Loans
pursuant to the terms of this Agreement shall be in effect for an initial period
commencing on the date on which such Term Event occurred and shall automatically
terminate at 5:00 p.m. (New York City time), on the last business day of the
calendar month in which such Term Event occurred (the "Initial Term").
Thereafter, the Initial Term shall be extendible in the sole discretion of the
Initial Noteholder by written notice (each, a "Servicer Extension Notice") of
the Initial Noteholder for successive one-month terms (each such term ending at
5:00 p.m. (New York City time), on the last business day of the related month).
Following a Term Event, the Servicer hereby agrees that the Servicer shall be
bound for the duration of the Initial Term and the term covered by any such
Servicer Extension Notice to act as the Servicer pursuant to this Agreement.
Following a Term Event, the Servicer agrees that if, as of 3:00 p.m. (New York
City time) on the last business day of any month, the Servicer shall not have
received a Servicer Extension Notice from the Initial Noteholder, the Servicer
shall give written notice of such non-receipt to the Initial Noteholder by

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4:00 p.m. (New York City time). Following a Term Event, the failure of the
Initial Noteholder to deliver a Servicer Extension Notice by 5:00 p.m. (New York
City time) shall result in the automatic and immediate termination of the
Servicer (the "Termination Date"). Notwithstanding these time frames, the
Servicer and the Initial Noteholder shall comply with all applicable laws in
connection with such transfer and the Servicer shall continue to service the
Loans until completion of such transfer.

      Section 9.02 Appointment of Successor.

      On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is automatically terminated pursuant to
Section 9.01 (c) hereof, or the Owner Trustee receives the resignation of the
Servicer evidenced by an Opinion of Counsel or accompanied by the consents
required by Section 8.04 hereof, or the Servicer is removed as servicer pursuant
to this Article IX or Section 4.01 of the Servicing Addendum, then, the Majority
Noteholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.

      The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 hereof as if the Servicer had continued to act
as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15
of the Servicing Addendum. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 9.01 hereof but shall be entitled to
any accrued and unpaid Servicing Compensation to the date of termination.

      Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Indenture Trustee in connection with the termination of
the Servicer and the succession of a successor servicer shall be an expense of
the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee
and any successor servicer in effecting the termination of the Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
successor servicer all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should
have been deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. Upon the occurrence of an Event
of Default, the Majority Noteholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all

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documents relating to the Loans which are then or may thereafter come into the
possession of the Servicer or any third parry acting for the Servicer to be
delivered to such custodian or servicer as it selects and the Servicer shall
deliver to such custodian or servicer such assignments as the Majority
Noteholders shall request. No successor servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Servicer
hereunder. No appointment of a successor to the Servicer hereunder shall be
effective until written notice of such proposed appointment shall have been
provided to the Initial Noteholder, the Indenture Trustee, the Issuer and the
Depositor, the Majority Noteholders and the Issuer shall have consented in
writing thereto.

      In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.

      Section 9.03 Waiver of Defaults.

      The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so waived.

      Section 9.04 Accounting Upon Termination of Servicer.

      Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:

            (a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account maintained by
the Servicer;

            (b) deliver to its successor or, if none shall yet have been
appointed, to the Custodian all Loan Files and related documents and statements
held by it hereunder and a Loan portfolio computer tape;

            (c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee and to the Issuer and the Securityholders a
full accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and

            (d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Loans to its successor and to more fully and definitively vest
in such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.

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                                   ARTICLE X

                             TERMINATION; PUT OPTION

      Section 10.01 Termination.

            (a) This Agreement shall terminate upon either: (A) the later of (i)
the satisfaction and discharge of the Indenture and the provisions thereof and
payment to the Noteholders of all amounts due and owing in accordance with the
provisions hereof or (ii) the disposition of all funds with respect to the last
Loan and Residual Security and the remittance of all funds due hereunder and the
payment of all amounts due and payable, including, in both cases, without
limitation, indemnification payments payable pursuant to any Basic Document to
the Indenture Trustee, the Owner Trustee, the Issuer, the Servicer and the
Custodian, written notice of the occurrence of either of which shall be provided
to the Indenture Trustee by the Servicer; or (B) the mutual consent of the
Servicer, the Depositor and all Securityholders in writing and delivered to the
Indenture Trustee by the Servicer.

            (b) The Securities shall be subject to an early redemption or
termination at the option of the Servicer and the Majority Noteholders in the
manner and subject to the provisions of Section 10.02 and 10.04 of this
Agreement.

            (c) Except as provided in this Article X, none of the Depositor, the
Servicer nor any Certificateholder or Noteholder shall be entitled to revoke or
terminate the Trust.

      Section 10.02 Optional Termination.

            (a) The Servicer may, at its option, effect an early termination of
the Trust on any Payment Date on or after the Clean-up Call Date. The Servicer
shall effect such early termination by providing notice thereof to the Indenture
Trustee and Owner Trustee and by purchasing all of the Loans, the Residual
Securities and the Advance Note at a purchase price, payable in cash, equal to
or greater than the Termination Price. The expense of any Independent appraiser
required in connection with the calculation and payment of the Termination Price
under this Section 10.02 shall be a nonreimbursable expense of the Servicer.

      Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c) (1) hereof) shall be deposited in the Distribution Account and
distributed by the Indenture Trustee pursuant to Section 5.01(c)(3) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans, the Residual
Securities and Foreclosure Properties subsequent to the final Payment Date shall
belong to the purchaser thereof.

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      Section 10.03 Notice of Termination.

      Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 10.01 shall be sent by the
Indenture Trustee to the Noteholders in accordance with Section 10.02 of the
Indenture.

      Section 10.04 Put Option.

      The Majority Noteholders may, at their option, effect a put of the entire
outstanding Note Principal Balance, or any portion thereof, to the Trust on any
date by exercise of the Put Option. The Majority Noteholders shall effect such
put by providing notice thereof in accordance with Section 10.05 of the
Indenture.

      Unless otherwise agreed by the Majority Noteholders, on the third Business
Day prior to the Put Date, the Issuer shall deposit the Note Redemption Amount
into the Distribution Account and, if the Put Date occurs after the termination
of the Revolving Period and constitutes a put of the entire outstanding Note
Principal Balance, any amounts then on deposit in the Collection Account (other
than any amounts withdrawable pursuant to Section 5.01(c)(1) hereof) shall be
deposited in the Distribution Account and distributed by the Paying Agent
pursuant to section 5.01 (c) (3) of this Agreement on the Put Date; and any
amounts received with respect to the Loans, Residual Securities and Foreclosure
Properties subsequent to the Put Date shall belong to the Issuer.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

      Section 11.01 Acts of Securityholders.

      Except as otherwise specifically provided herein and except with respect
to Section 11.02(b), whenever action, consent or approval of the Securityholders
is required under this Agreement, such action, consent or approval shall be
deemed to have been taken or given on behalf of, and shall be binding upon, all
Securityholders if the Majority Noteholders agree to take such action or give
such consent or approval.

      Section 11.02 Amendment.

            (a) This Agreement may be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement with notice thereof to the Securityholders, without
the consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders, as evidenced by an Opinion of Counsel to such
effect provided at the expense of the party requesting such Amendment.

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            (b) This Agreement may also be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Loans or Residual Securities or distributions which
are required to be made on any Security, without the consent of the holders of
100% of the Securities, (ii) adversely affect in any material respect the
interests of any of the holders of the Securities in any manner other than as
described in clause (i), without the consent of the holders of 100% of the
Securities, or (iii) reduce the percentage of the Securities, the consent of
which is required for any such amendment, without the consent of the holders of
100% of the Securities.

            (c) It shall not be necessary for the consent of Securityholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.

      Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Issuer and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Issuer's own
rights, duties or immunities of the Issuer or the Indenture Trustee, as the case
may be, under this Agreement.

      Section 11.03 Recordation of Agreement.

      To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders' expense
on direction of the Majority Noteholders but only when accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of the Securityholders or is necessary for the
administration or servicing of the Loans.

      Section 11.04 Duration of Agreement.

      This Agreement shall continue in existence and effect until terminated as
herein provided.

      Section 11.05 Governing Law.

      THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.

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      Section 11.06 Notices.

      All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (1) in the case of the Depositor, to Option One Loan Warehouse
Corporation, 3 Ada, Irvine, California 92618, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (2) in
the case of the Trust, to Option One Owner Trust 2001-1A, c/o Wilmington Trust
Company, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration, telecopy number: (302)
651-8882, telephone number: (302) 651-1000, or such other address or telecopy or
telephone numbers as may hereafter be furnished to the Noteholders and the other
parties hereto in writing by the Trust; (3) in the case of the Loan Originator,
to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention:
William O'Neill, telecopy number: (949) 790-7540, telephone number: (949)
790-7504 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Loan Originator; (4) in the case of the Servicer, to Option One
Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention: William
O'Neill, telecopy number: (949) 790-7540, telephone number: (949) 790-7504 or
such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Servicer; and (5) in the case of the Indenture Trustee, at the Corporate Trust
Office, as defined in the Indenture, any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice or
telephone confirmation thereof by such party, except; provided, that notices to
the Securityholders shall be effective upon mailing or personal delivery.

      Section 11.07 Severability of Provisions.

      If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.

      Section 11.08 No Partnership.

      Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

      Section 11.09 Counterparts.

      This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

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      Section 11.10 Successors and Assigns.

      This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.

      Section 11.11 Headings.

      The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.

      Section 11.12 Actions of Securityholders.

            (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Depositor, the Servicer or the Issuer. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 11.12.

            (b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.

            (c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.

            (d) The Depositor, the Servicer or the Issuer may require additional
proof of any matter referred to in this Section 11.12 as it shall deem
necessary.

      Section 11.13 Non-Petition Agreement.

      Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Servicer, the Depositor and the Indenture Trustee each severally
and not jointly covenants that it shall not, prior to the date which is one year
and one day after the payment in full of the all of the Notes, acquiesce,
petition or otherwise, directly or indirectly, invoke or cause the Trust or the
Depositor to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Issuer or Depositor 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 Issuer or Depositor or any substantial part of their respective property
or ordering the winding up or liquidation of the affairs of the Issuer or the
Depositor.

                                       81
<PAGE>

      Section 11.14 Holders of the Securities.

            (a) Any sums to be distributed or otherwise paid hereunder or under
this Agreement to the holders of the Securities shall be paid to such holders
pro rata based on their Percentage Interests;

            (b) Where any act or event hereunder is expressed to be subject to
the consent or approval of the holders of the Securities, such consent or
approval shall be capable of being given by the holder or holders evidencing in
the aggregate not less than 51% of the Percentage Interests.

      Section 11.15 Due Diligence Fees, Due Diligence.

      The Loan Originator acknowledges that the Initial Noteholder has the right
to perform continuing due diligence reviews with respect to the Loans, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Loan Originator agrees that
upon reasonable prior notice (with no notice being required upon the occurrence
of an Event of Default) to the Loan Originator, the Initial Noteholder, the
Indenture Trustee and Custodian or its authorized representatives will be
permitted during normal business hours to examine, inspect, and make copies and
extracts of, the Loan Files and any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control of the Servicer and the Indenture Trustee. The Loan Originator also
shall make available to the Initial Noteholder a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans and the financial condition of the Loan Originator. Without
limiting the generality of the foregoing, the Loan Originator acknowledges that
the Initial Noteholder may purchase Notes based solely upon the information
provided by the Loan Originator to the Initial Noteholder in the Loan Schedule
and the representations, warranties and covenants contained herein, and that the
Initial Noteholder, at its option, has the right at any time to conduct a
partial or complete due diligence review on some or all of the Loans securing
such purchase, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Loan. The Initial Noteholder may underwrite
such Loans itself or engage a mutually agreed upon third party underwriter to
perform such underwriting. The Loan Originator agrees to cooperate with the
Initial Noteholder and any third party underwriter in connection with such
underwriting, including, but not limited to, providing the Initial Noteholder
and any third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Loans in the possession,
or under the control, of the Servicer. The Loan Originator further agrees that
the Loan Originator shall reimburse the Initial Noteholder for any and all
reasonable out-of-pocket costs and expenses incurred by the Initial Noteholder
in connection with the Initial Noteholder's activities pursuant to this Section
11.15 hereof (the "Due Diligence Fees"). In addition to the obligations set
forth in Section 11.17 of this Agreement, the Initial Noteholder agrees (on
behalf of itself and its Affiliates, directors, officers, employees and
representatives) to use reasonable precaution to keep confidential, in
accordance with its customary procedures for handling confidential information
and in accordance with safe and sound practices, and not to disclose to any
third party, any non-public information supplied to it or otherwise obtained by
it hereunder with respect to the Loan Originator or any of its Affiliates
(including, but not limited to, the Loan

                                       82
<PAGE>

File); provided, however, that nothing herein shall prohibit the disclosure of
any such information to the extent required by statute, rule, regulation or
judicial process; provided, further that, unless specifically prohibited by
applicable law or court order, the Initial Noteholder shall, prior to disclosure
thereof, notify the Loan Originator of any request for disclosure of any such
non-public information. The Initial Noteholder further agrees not to use any
such non-public information for any purpose unrelated to this Agreement and that
the Initial Noteholder shall not disclose such non-public information to any
third party underwriter in connection with a potential Disposition without
obtaining a written agreement from such third party underwriter to comply with
the confidentiality provisions of this Section 11.15.

      Section 11.16 No Reliance.

      Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Initial Noteholder or any of its
officers, directors, employees, agents and "control persons" as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended,
for any tax, accounting, legal or other professional advice in connection with
the transactions contemplated by the Basic Documents, that each of the Loan
Originator, the Depositor and the Issuer has retained and been advised by such
tax, accounting, legal and other professionals as it has deemed necessary in
connection with the transactions contemplated by the Basic Documents and that
the Initial Noteholder makes no representation or warranty, and shall have no
liability with respect to, the tax, accounting or legal treatment or
implications relating to the transactions contemplated by the Basic Documents.

      Section 11.17 Confidential Information.

      In addition to the confidentiality requirements set forth in Section 11.15
of the Agreement, each Noteholder, as well as the Indenture Trustee and the
Disposition Agent (each of said parties singularly referred to herein as a
"Receiving Party" and collectively referred to herein as the "Receiving
Parties"), agrees to hold and treat all Confidential Information (as defined
below) in confidence and in accordance with this Section. Such Confidential
Information will not, without the prior written consent of the Servicer and the
Loan Originator, be disclosed or used by such Receiving Parties or its
subsidiaries, Affiliates, directors, officers, members, employees, agents or
controlling persons (collectively, the "Information Recipients") other than for
the purpose of making a decision to purchase or sell Notes or taking any other
permitted action under this Agreement and or any other Basic Document. Each
Receiving Party agrees to disclose Confidential Information only to its
Information Recipients who need to know it for the purpose of making a decision
to purchase or sell Notes or the taking of any other permitted action under this
Agreement and or any other Basic Document (including in connection with the
servicing of the Loans and in connection with any servicing transfers) and who
are informed by such Receiving Party of its confidential nature and who agree to
be bound by the terms of this Section 11.17. Disclosure that is not in violation
of the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act or other
applicable law by such Receiving Party of any Confidential Information at the
request of its outside auditors or governmental regulatory authorities in
connection with an examination of a Receiving Party by any such authority shall
not constitute a breach of its obligations under this Section 11.17 and shall
not require the prior consent of the Servicer and the Loan Originator.

                                       83
<PAGE>

      Each Receiving Party shall be responsible for any breach of this Section
11.17 by its Information Recipients. The Initial Noteholder may use Confidential
Information for internal due diligence purposes in connection with its analysis
of the transactions contemplated by the Basic Documents. The Disposition Agent
may disclose Confidential Information to the Disposition Participants as
required to effect Dispositions. This Section 11.17 shall terminate upon the
occurrence of an Event of Default; provided, however, that such termination
shall not relieve the Receiving Parties or their respective Information
Recipients from the obligation to comply with the Gramm-Leach-Bliley Act or
other applicable law with respect to their use or disclosure of Confidential
Information following the occurrence of an Event of Default.

      As used herein, "Confidential Information" means non-public personal
information (as defined in the Gramm-Leach-Bliley Act and its enabling
regulations issued by the Federal Trade Commission) regarding Borrowers.
Confidential Information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a
Receiving Party or any Information Recipients; (ii) was available to a Receiving
Party on a non-confidential basis prior to its disclosure to Receiving Party by
the Servicer or the Loan Originator; (iii) is required to be disclosed by a
governmental authority or related governmental agencies or as otherwise required
by law; (iv) becomes available to a Receiving Party on a non-confidential basis
from a Person other than the Servicer or the Loan Originator who, to the best
knowledge of such Receiving Party, is not otherwise bound by a confidentiality
agreement with the Servicer or the Loan Originator and is not otherwise
prohibited from transmitting the information to such Receiving Party.

      Section 11.18 Conflicts.

      Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.

      Section 11.19 Limitation on Liability.

      It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2001-1A, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Issuer, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Agreement or any other related documents.

                                       84
<PAGE>

      Section 11.20 No Agency.

      Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Initial Noteholder or the
Majority Noteholders or any of their Affiliates and the Issuer, the Depositor,
the Loan Originator or the Servicer. None of the Initial Noteholder, the
Majority Noteholders or any of their Affiliates shall be liable for any acts or
actions affected in connection with a disposition of Loans or Residual
Securities, including without limitation, any Securitization pursuant to Section
3.06, any Loan Originator Put or Servicer Call pursuant to Section 3.07 hereof
nor any Whole Loan Sale pursuant to Section 3.10 hereof.

                            (SIGNATURE PAGE FOLLOWS)

                                       85
<PAGE>

      IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Indenture
Trustee and the Loan Originator have caused their names to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written, to this Second Amended and Restated Sale and Servicing Agreement.

                                         OPTION ONE OWNER TRUST 2001-1A,
                                         By: Wilmington Trust Company
                                             not in its individual capacity
                                             but solely as Owner Trustee

                                         By: /s/ Mary Kay Pupillo
                                             -----------------------------------
                                             Name: Mary Kay Pupillo
                                             Title: Assistant Vice President

                                         OPTION ONE LOAN WAREHOUSE
                                         CORPORATION, as Depositor

                                         By: /s/ David S. Wells
                                             -----------------------------------
                                             Name: David S. Wells
                                             Title: Assistant Secretary

                                         OPTION ONE MORTGAGE CORPORATION,
                                         as Loan Originator and Servicer

                                         By: /s/ David S. Wells
                                             -----------------------------------
                                             Name: David S. Wells
                                             Title: Vice President

                                         WELLS FARGO BANK, N.A.,
                                         as Indenture Trustee

                                         By: /s/ Darron C. Woodus
                                             -----------------------------------
                                             Name: Darron C. Woodus
                                             Title: Assistant Vice President

                                       86
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.49
<SEQUENCE>9
<FILENAME>c91685exv10w49.txt
<DESCRIPTION>INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.49

================================================================================

                                    INDENTURE

                                     between

                         OPTION ONE OWNER TRUST 2001-1A
                                    as Issuer

                                       and

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              as Indenture Trustee

                            Dated as of April 1, 2001

                         OPTION ONE OWNER TRUST 2001-1A
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                  Page
                                                                                  ----
<S>                                                                               <C>
                                    ARTICLE I

                                   DEFINITIONS

Section 1.01. Definitions.......................................................    2
Section 1.02. Rules of Construction.............................................    7

                                   ARTICLE II

                  GENERAL PROVISIONS WITH RESPECT TO THE NOTES
Section 2.01. Method of Issuance and Form of Notes..............................    9
Section 2.02. Execution, Authentication, Delivery and Dating....................    9
Section 2.03. Registration; Registration of Transfer and Exchange...............   10
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes........................   11
Section 2.05. Persons Deemed Noteholders........................................   11
Section 2.06. Payment of Principal and/or Interest; Defaulted Interest..........   12
Section 2.07. Cancellation......................................................   12
Section 2.08. Conditions Precedent to the Authentication of the Notes...........   13
Section 2.09. Release of Collateral.............................................   14
Section 2.10. Additional Note Principal Balance.................................   15
Section 2.11. Tax Treatment.....................................................   15
Section 2.12. Limitations on Transfer of the Notes..............................   15

                                   ARTICLE III

                                    COVENANTS
Section 3.01. Payment of Principal and/or Interest..............................   16
Section 3.02. Maintenance of Office or Agency...................................   16
Section 3.03. Money for Payments to Be Held in Trust............................   16
Section 3.04. Existence.........................................................   18
Section 3.05. Protection of Collateral..........................................   18
Section 3.06. Negative Covenants................................................   19
Section 3.07. Performance of Obligations; Servicing of Loans....................   20
Section 3.08. Reserved..........................................................   21
Section 3 09. Annual Statement as to Compliance ................................   21
Section 3.10. Covenants of the Issuer...........................................   21
Section 3.11. Servicer's Obligations............................................   22
Section 3.12. Restricted Payments...............................................   22
Section 3.13. Treatment of Notes as Debt for All Purposes.......................   22
Section 3.14. Notice of Events of Default.......................................   22
Section 3.15. Further Instruments and Acts......................................   22
</TABLE>

                                       -i-
<PAGE>

<TABLE>
<S>                                                                                         <C>
                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE

Section 4.01. Satisfaction and Discharge of Indenture.....................................  22
Section 4.02. Application of Trust Money..................................................  23
Section 4.03. Repayment of Moneys Held by Paying Agent....................................  24

                                    ARTICLE V

                                    REMEDIES
Section 5.01. Events of Default...........................................................  24
Section 5.02. Acceleration of Maturity; Rescission and Annulment..........................  26
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee...  26
Section 5.04. Remedies; Priorities........................................................  28
Section 5.05. Optional Preservation of the Collateral.....................................  30
Section 5.06. Limitation of Suits.........................................................  30
Section 5.07. Unconditional Rights of Noteholders to Receive Principal and/or Interest....  31
Section 5.08. Restoration of Rights and Remedies..........................................  31
Section 5.09. Rights and Remedies Cumulative. ............................................  31
Section 5.10. Delay or Omission Not a Waiver..............................................  31
Section 5.11. Control by Noteholders......................................................  32
Section 5.12. Waiver of Past Defaults.....................................................  32
Section 5.13. Undertaking for Costs.......................................................  33
Section 5.14. Waiver of Stay or Extension Laws............................................  33
Section 5.15. Action on Notes.............................................................  33
Section 5.16. Performance and Enforcement of Certain Obligations..........................  33

                                   ARTICLE VI

                              THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee.................................................  34
Section 6 02. Rights of Indenture Trustee.................................................  35
Section 6.03. Individual Rights of Indenture Trustee......................................  36
Section 6.04. Indenture Trustee's Disclaimer..............................................  36
Section 6 05. Notices of Default..........................................................  36
Section 6.06. Reports by Indenture Trustee to Holders.....................................  36
Section 6 07. Compensation and Indemnity..................................................  36
Section 6.08. Replacement of Indenture Trustee............................................  37
Section 6.09. Successor Indenture Trustee by Merger.......................................  38
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee...........  38
Section 6 11. Eligibility.................................................................  40

                                   ARTICLE VII

                         NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders......  40
</TABLE>

                                      -ii-
<PAGE>

<TABLE>
<S>                                                                                         <C>
Section 7.02. Preservation of Information.................................................  40
Section 7.03. 144A Information............................................................  40

                                  ARTICLE VIII

                      ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money.........................................................  40
Section 8.02. Trust Accounts; Distributions...............................................  41
Section 8.03. General Provisions Regarding Trust Accounts.................................  41
Section 8.04. The Paying Agent............................................................  42
Section 8.05. Release of Collateral.......................................................  42
Section 8.06. Opinion of Counsel..........................................................  42

                                   ARTICLE IX

                            SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without the Consent of the Noteholders..............  43
Section 9.02. Supplemental Indentures with Consent of Noteholders.........................  44
Section 9.03. Execution of Supplemental Indentures........................................  45
Section 9.04. Effect of Supplemental Indentures...........................................  45
Section 9.05. Reference in Notes to Supplemental Indentures...............................  45

                                    ARTICLE X

                        REDEMPTION OF NOTES; PUT OPTION
Section 10 01. Redemption.................................................................  45
Section 10.02. Form of Redemption Notice..................................................  46
Section 10.03. Notes Payable on Redemption Date ..........................................  46
Section 10.04. Put Option.................................................................  46
Section 10.05. Form of Put Option Notice..................................................  46
Section 10 06. Notes Payable on Put Date..................................................  47

                                   ARTICLE XI

                                  MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc..................................  47
Section 11.02. Form of Documents Delivered to Indenture Trustee...........................  47
Section 11.03. Acts of Noteholders........................................................  48
Section 11.04. Notices, etc., to Indenture Trustee and Issuer.............................  49
Section 11.05. Notices to Noteholders; Waiver.............................................  49
Section 11.06. Effect of Headings and Table of Contents...................................  50
Section 11.07. Successors and Assigns.....................................................  50
Section 11.08. Separability...............................................................  50
Section 11.09. Benefits of Indenture......................................................  50
Section 11.10. Legal Holidays.............................................................  50
Section 11.11. GOVERNING LAW..............................................................  50
</TABLE>

                                      -iii-
<PAGE>

<TABLE>
<S>                                                                                         <C>
Section 11.12. Counterparts...............................................................  50
Section 11.13. Recording of Indenture.....................................................  50
Section 11.14. Trust Obligation...........................................................  51
Section 11.15. No Petition................................................................  51
Section 11.16. Inspection ................................................................  51
Section 11.17. Limitation on Liability....................................................  51
</TABLE>

                                    EXHIBITS

EXHIBIT A  -     Form of Notes
EXHIBIT B-l-     Form of Transferor Affidavit (144A)
EXHIBIT B-2-     Form of Transferee Affidavit (Accredited Investor)
EXHIBIT B-3-     Form of Transfer Affidavit
EXHIBIT C  -     Form of Securities Legend

                                      -iv-
<PAGE>


                                    INDENTURE

            INDENTURE dated as of April 1, 2001 (the "Indenture"), between
OPTION ONE OWNER TRUST 2001-1 A, a Delaware business trust, as Issuer (the
"Issuer"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture
Trustee (the "Indenture Trustee").

                                WITNESSETH THAT:

            In consideration of the mutual covenants herein contained, the
Issuer has duly authorized the execution and delivery of this Indenture to
provide for the issuance of Notes, issuable as provided in this Indenture. All
covenants and agreements made by the Issuer herein are for the benefit and
security of the Noteholders.

                                 GRANTING CLAUSE

            Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Noteholders, all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to: (i) such Loans as from time to time are
subject to the Sale and Servicing Agreement as listed in the Loan Schedule, as
the same may be amended or supplemented on each Transfer Date and by the removal
of Deleted Loans and Unqualified Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Custodial Loan
Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest
and principal with respect to each Loan received on or after the related
Transfer Cut-off Date, (iv) such assets as from time to time are identified as
Foreclosure Property, (v) such assets and funds as are from time to time
deposited in the Distribution Account, Collection Account and the Transfer
Obligation Account, including, without limitation, amounts on deposit in such
accounts that are invested in Permitted Investments, (vi) lenders' rights under
all Mortgage Insurance Policies and to any Mortgage Insurance Proceeds, (vii)
Net Liquidation Proceeds and Released Mortgaged Property Proceeds, (viii) all
right, title and interest of the Trust (but none of the obligations) in and to
the obligations of Hedging Counterparties under Hedging Instruments; (ix) all
right, title and interest of each of the Depositor, the Loan Originator and the
Trust in and under the Basic Documents including, without limitation, the
obligations of the Loan Originator under the Loan Purchase and Contribution
Agreement and/or the Master Disposition Confirmation Agreement, and all proceeds
of any of the foregoing, (x) all right, title and interest of the Issuer in and
to the Sale and Servicing Agreement, including the Issuer's right to cause the
Loan Originator to repurchase Loans from the Issuer under certain circumstances
described therein), (xi) all other Property of the Trust from time to time and
(xii) all present and future claims, demands, causes of action and choses in
action in respect of any or all of the foregoing and all payments on or under
and all proceeds of every kind and nature whatsoever in respect of any or all of
the foregoing, including all proceeds of the conversion thereof, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Collateral").

<PAGE>

            The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.

            The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the Noteholders may adequately and effectively be
protected.

                                    ARTICLE I

                                   DEFINITIONS

            Section 1.01. Definitions. (a) Except as otherwise specified herein,
the following terms have the respective meanings set forth below for all
purposes of this Indenture.

            "Act" has the meaning specified in Section 11.03(a) hereof.

            "Additional Note Principal Balance" As defined in the Sale and
Servicing Agreement.

            "Administration Agreement" means the Administration Agreement dated
as of April 1, 2001, between the Issuer and the Administrator.

            "Administrator" means Option One Mortgage Corporation, or any
successor Administrator under the Administration Agreement.

            "Authorized Officer" means, with respect to the Issuer, any officer
of the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).

            "Basic Documents" As defined in the Sale and Servicing Agreement.

            "Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit C to the Trust Agreement.

            "Change of Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of outstanding shares of voting stock of the Loan
Originator at any time if after giving effect to such acquisition (i) such
Person or

                                        2
<PAGE>

Persons owns twenty percent (20%) or more of such outstanding voting stock or
(ii) H&R Block, Inc. does not own more than fifty percent (50%) of such
outstanding shares of voting stock.

            "Clean-up Call Date" As defined in the Sale and Servicing Agreement.

            "Closing Date" means April 18, 2001.

            "Collateral" has the meaning specified in the Granting Clause of
this Indenture.

            "Commission" means the Securities and Exchange Commission.

            "Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Indenture is located,
for note transfer purposes, at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Option One Owner Trust 2001-1A, telecopy number:
(612) 667-6282, telephone number: (800) 344-5128, and for all other purposes, at
11000 Broken Land Parkway, Columbia, Maryland 21044, Attention: Option One
Owner Trust 2001-1A, telecopy number: (410) 884-2372, telephone number: (410)
884-2000, or at such other address as the Indenture Trustee may designate from
time to time by notice to the Noteholders and the Issuer, or the principal
corporate trust office of any successor Indenture Trustee at the address
designated by such successor Indenture Trustee by notice to the Noteholders and
the Issuer.

            "Default" means any occurrence that is, or with notice or the lapse
of time or both would become, an Event of Default.

            "Depositor" shall mean Option One Loan Warehouse Corporation, a
Delaware corporation; in its capacity as depositor under the Sale and Servicing
Agreement, or any successor in interest thereto.

            "Depository Institution" means any depository institution or trust
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and (c) has
outstanding unsecured commercial paper or other short-term unsecured debt
obligations that are rated at a rating to which the Majority Noteholders consent
in writing.

            "Event of Default" has the meaning specified in Section 5.01 hereof.

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Executive Officer" means, with respect to (i) the Depositor, the
Servicer, the Loan Originator or any Affiliate of any of them, the President,
any Vice President or the Treasurer of such corporation; and with respect to any
partnership, any general partner thereof, (ii) the Note Registrar, any
Responsible Officer of the Indenture Trustee, (iii) any other corporation, the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such entity and (iv) any partnership, any general partner thereof.

                                        3
<PAGE>

            "Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to dc or
receive thereunder or with respect thereto.

            "Holder" means the Person in whose name a Note is registered on the
Note Register.

            "ICA Owner" means "beneficial owner" as such term is used in Section
3(c)(1) of the Investment Company Act of 1940. as amended (other than any
persons who are excluded from such term or from the 100-beneficial owner test of
Section 3(c)(1) by law or regulations adopted by the Securities and Exchange
Commission.

            "Indenture" means this Indenture and any amendments hereto.

            "Indenture Trustee" means Wells Fargo Bank Minnesota, National
Association, a national banking association, as Indenture Trustee under this
Indenture, or any successor Indenture Trustee hereunder.

            "Issuer" means Option One Owner Trust 2001-1A.

            "Issuer Order" and "Issuer Request" mean a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.

            "Loan Originator" means Option One Mortgage Corporation, a
California corporation.

            "Majority Certificateholders" As defined in the Sale and Servicing
Agreement.

            "Maturity Date" means, with respect to the Notes, 364 days after the
commencement of the Revolving Period, provided that the Maturity Date shall
automatically be extended for an additional 364 days unless the Initial
Noteholder notifies the Depositor and the Issuer in writing at least 180 days
prior to the expiration of the initial 364 day period that it elects not to
extend the Maturity Date for such additional 364 day period.

            "Maximum Note Principal Balance" As defined in the Note Purchase
Agreement.

            "Note" means any Note authorized by and authenticated and delivered
under this Indenture.

                                        4
<PAGE>

            "Note Interest Rate" means for each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin and the Additional LIBOR Margin for such Accrual Period.

            "Note Principal Balance" As defined in the Sale and Servicing
Agreement.

            "Note Purchase Agreement" means the Note Purchase Agreement dated as
of April 18, 2001, among the Issuer, the Depositor and Greenwich Capital
Financial Products, Inc.

            "Note Redemption Amount" As defined in the Sale and Servicing
Agreement.

            "Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.03 hereof.

            "Noteholder" means the Person in whose name a Note is registered on
the Note Register.

            "Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01
hereof, and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer or the Administrator.

            "Opinion of Counsel" means one or more written opinions of counsel
who may, except as otherwise expressly provided in this Indenture, be an
employee of or counsel to the Issuer, and which opinion or opinions shall be
addressed to the Indenture Trustee, as Indenture Trustee, and shall comply with
any applicable requirements of Section 11.01 hereof and shall be in form and
substance satisfactory to the Initial Noteholder.

            "Outstanding" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:

            (i) Notes theretofore canceled by the Note Registrar or delivered to
      the Note Registrar for cancellation;

            (ii) Notes or portions thereof the payment for which money in the
      necessary amount has theretofore been deposited with the Indenture Trustee
      or any Paying Agent in trust for the Noteholders (provided, however, that
      if such Notes are to be redeemed, notice of such redemption has been duly
      given pursuant to this Indenture or provision for such notice satisfactory
      to the Indenture Trustee has been made); and

            (iii) Notes in exchange for or in lieu of which other Notes have
      been authenticated and delivered pursuant to this Indenture unless proof
      satisfactory to the Indenture Trustee is presented that any such Notes are
      held by a bona fide purchaser; provided, however, that in determining
      whether the Noteholders representing the requisite Percentage Interests of
      the Outstanding Notes have given any request, demand, authorization,
      direction, notice, consent

                                        5
<PAGE>

      or waiver hereunder or under any Basic Document, Notes owned by the
      Issuer, any other obligor upon the Notes, the Depositor or any Affiliate
      of any of the foregoing Persons shall be disregarded and deemed not to be
      Outstanding, except that, in determining whether the Indenture Trustee
      shall be protected in relying upon any such request, demand,
      authorization, direction, notice, consent or waiver, only Notes that the
      Indenture Trustee actually knows to be owned in such manner shall be
      disregarded. Notes owned in such manner that have been pledged in good
      faith may be regarded as Outstanding if the pledgee certifies to the
      Indenture Trustee (y) that the pledgee has the right so to act with
      respect to such Notes and (z) that the pledgee is not the Issuer, any
      other obligor upon the Notes, the Depositor or any Affiliate of any of the
      foregoing Persons.

            "Owner Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee under the Trust Agreement, or
any successor Owner Trustee under the Trust Agreement.

            "Paving Agent" means (unless the Paying Agent is the Servicer) a
Person that meets the eligibility standards for the Indenture Trustee specified
in Section 6.11 hereof and is authorized by the Issuer to make payments to and
distributions from the Collection Account and the Distribution Account,
including payment of principal of or interest on the Notes on behalf of the
Issuer. The initial Paying Agent shall be the Servicer; provided that if the
Servicer is terminated as Paying Agent for any reason, the Indenture Trustee
shall be the Paying Agent until another Paying Agent is appointed by the Initial
Noteholder pursuant to Section 8.04 herein. The Indenture Trustee shall be
entitled to reasonable additional compensation for assuming the role of Paying
Agent.

            "Payment Date" As defined in the Sale and Servicing Agreement.

            "Percentage Interest" means, with respect to any Note and as of any
date of determination, the percentage equal to a fraction, the numerator of
which is the principal balance of such Note as of such date of determination and
the denominator of which is the Note Principal Balance.

            "Person" As defined in the Sale and Servicing Agreement.

            "Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 hereof in lieu of a mutilated,
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.

            "Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.

            "Record Date" As defined in the Sale and Servicing Agreement.

            "Redemption Date" means in the case of a redemption of the Notes
pursuant to Section 10.01 hereof, the Payment Date specified by the Servicer
pursuant to such Section 10.01.

                                        6
<PAGE>

            "Registered Holder" means the Person in the name of which a Note is
registered on the Note Register on the applicable Record Date.

            "Revolving Period" As defined in the Sale and Servicing Agreement.

            "Sale Agent" has the meaning assigned to such term in Section 5.11
hereof.

            "Sale and Servicing Agreement" means the Sale and Servicing
Agreement dated as of April 1, 2001, among the Issuer, the Depositor, the
Servicer, the Loan Originator and the Indenture Trustee on behalf of the
Noteholders.

            "Servicer" shall mean Option One Mortgage Corporation, in its
capacity as servicer under the Sale and Servicing Agreement, and any successor
servicer thereunder.

            "State" means any one of the States of the United States of America
or the District of Columbia.

            "Termination Price" As defined in the Sale and Servicing Agreement.

            "Transfer Date" As defined in the Sale and Servicing Agreement.

            "Trust Agreement" means the Trust Agreement dated as of April 1,
2001, between the Depositor and the Owner Trustee.

            "Trust Certificate" has the meaning assigned to such term in Section
1.1 of the Trust Agreement.

            "Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.

            (b) Except as otherwise specified herein or as the context may
otherwise require, capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.

            Section 1.02. Rules of Construction. Unless the context otherwise
requires:

            (i) a term has the meaning assigned to it;

            (ii) an accounting term not otherwise defined has the meaning
      assigned to it in accordance with GAAP;

            (iii) "or" is not exclusive;

            (iv) "including" means including without limitation;

                                        7
<PAGE>

            (v) words in the singular include the plural and words in the plural
      include the singular; and

            (vi) any agreement, instrument or statute defined or referred to
      herein or in any instrument or certificate delivered in connection
      herewith means such agreement, instrument or statute as from time to time
      amended, modified or supplemented (as provided in such agreements) and
      includes (in the case of agreements or instruments) references to all
      attachments thereto and instruments incorporated therein; references to a
      Person are also to its permitted successors and assigns.

                                        8
<PAGE>

                                   ARTICLE II

                  GENERAL PROVISIONS WITH RESPECT TO THE NOTES

            Section 2.01. Method of Issuance and Form of Notes.

            (a) The Notes shall be designated generally as the "Option One Owner
Trust 2001-1A Mortgage-Backed Notes" of the Issuer. Each Note shall bear upon
its face the designation so selected for the Notes. All Notes shall be identical
in all respects except for the denominations thereof. All Notes issued under
this Indenture shall be in all respects equally and ratably entitled to the
benefits thereof without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in accordance with the
terms and provisions of this Indenture.

            The Notes may be typewritten, printed, lithographed or engraved or
produced by any combination of these methods, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.

            Each Note shall be dated the date of its authentication.

            The terms of the Notes shall be set forth in this Indenture.

            The Notes shall be in definitive form and shall bear a legend
substantially in the form of Exhibit C attached hereto.

            Section 2.02. Execution, Authentication, Delivery and Dating. The
Notes shall be executed on behalf of the Issuer by an Authorized Officer of the
Owner Trustee or the Administrator. The signature of any such Authorized Officer
on the Notes may be manual or facsimile.

            Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Owner Trustee or the Administrator
shall bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Notes or did not hold such offices at the date of such Notes.

            Subject to the satisfaction of the conditions set forth in Section
2.08 hereof, the Indenture Trustee shall upon Issuer Order authenticate and
deliver the Notes.

            The Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer on the Closing Date shall be dated as
of such Closing Date. All other Notes that are authenticated after the Closing
Date for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issued in such denominations as may be agreed
by the Issuer and the Initial Noteholder.

            No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its

                                        9
<PAGE>

authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.

            Section 2.03. Registration; Registration of Transfer and Exchange.
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee initially shall be the "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of the Note
Registrar.

            If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Noteholders and the
principal amounts and number of the Notes.

            Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.02
hereof, the Issuer shall execute, and the Indenture Trustee shall authenticate
and the Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate Note Principal Balance.

            At the option of the Holder, Notes may be exchanged for other Notes
in any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.

            All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

            Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in the form attached to the form of Note attached as Exhibit A hereto
duly executed by the Holder thereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agents' Medallion Program
("STAMP").

            No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 9.05 hereof not involving any transfer.

                                       10
<PAGE>

            The preceding provisions of this Section 2.03 notwithstanding, the
Issuer shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.

            Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Issuer and Indenture Trustee such
security or indemnity as may reasonably be required by it to hold the Issuer and
the Indenture Trustee, as applicable, harmless, then, in the absence of notice
to the Issuer, the Note Registrar or the Indenture Trustee that such Note has
been acquired by a bona fide purchaser, an Authorized Officer of the Owner
Trustee or the Administrator on behalf of the Issuer shall execute, and upon its
written request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days shall be
due and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If, after
the delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer shall be entitled to recover such
replacement Note (or such payment) from the Person to which it was delivered or
any Person taking such replacement Note from such Person to which such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and the Issuer and the Indenture Trustee shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in
connection therewith.

            Upon the issuance of any replacement Note under this Section 2.04,
the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.

            Every replacement Note issued pursuant to this Section 2.04 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

            The provisions of this Section 2.04 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.

            Section 2.05. Persons Deemed Noteholders. Prior to due presentment
for registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in the
name of which any Note is registered (as of the day of determination) as the
Noteholder for the purpose of receiving payments of principal of and

                                       11
<PAGE>

interest, if any, on such Note and for all other purposes whatsoever, whether or
not such Note be overdue, and none of the Issuer, the Indenture Trustee or any
agent of the Issuer or the Indenture Trustee shall be affected by notice to the
contrary.

            Section 2.06. Payment of Principal and/or Interest; Defaulted
Interest.

            (a) The Notes shall accrue interest at the Note Interest Rate, and
such interest shall be payable on each Payment Date, subject to Section 3.01
hereof. Any installment of interest or principal, if any, payable on any Note
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall be paid to the Person in the name of which such Note (or one
or more Predecessor Notes) is registered on the next preceding Record Date based
on the Percentage Interest represented by its respective Note, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes having a Percentage Interest of at least 20% and shall have so
notified the Paying Agent and the Indenture Trustee, and otherwise by check
mailed to the address of such Noteholder appearing in the Note Register no less
than five days preceding the related Record Date. The final installment of
principal payable with respect to such Note shall be payable as provided in
Section 2.06(b) below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03 hereof.

            (b) The principal of each Note shall be payable in installments on
each Payment Date as provided in Sections 5.01 and 5.02 of the Sale and
Servicing Agreement and Section 5.04(b) hereof. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable, if not
previously paid, on the earlier of (i) the Maturity Date, (ii) the Redemption
Date, (iii) the Final Put Date and (iv) the date on which an Event of Default
shall have occurred and be continuing, if the Indenture Trustee or the Majority
Noteholders shall have declared the Notes to be immediately due and payable in
the manner provided in Section 5.02 hereof.

            All principal payments on the Notes shall be made pro rata to the
Noteholders based on their respective Percentage Interests. The Paying Agent
shall notify the Person in the name of which a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be provided
to Noteholders as set forth in Section 10.02 hereof.

            Section 2.07. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall promptly be canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall promptly be canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this

                                       12
<PAGE>

Section 2.07, except as expressly permitted by this Indenture. All canceled
Notes may be held or disposed of by the Indenture Trustee in accordance with its
standard retention or disposal policy as in effect at the time unless the Issuer
shall direct by an Issuer Order that they be destroyed or returned to it;
provided, however, that such Issuer Order is timely and the Notes have not been
previously disposed of by the Indenture Trustee.

            Section 2.08. Conditions Precedent to the Authentication of the
Notes. The Notes may be authenticated by the Indenture Trustee upon receipt by
the Indenture Trustee of the following:

            (a) An Issuer Order authorizing authentication of such Notes by the
Indenture Trustee;

            (b) All of the items of Collateral which are to be delivered
pursuant to the Basic Documents to the Indenture Trustee or its designee by the
related Closing Date shall have been delivered;

            (c) An executed counterpart of each Basic Document;

            (d) One or more Opinions of Counsel addressed to the Indenture
Trustee to the effect that:

            (i) all conditions precedent provided for in this Indenture relating
      to the authentication of the Notes have been complied with;

            (ii) the Owner Trustee has power and authority to execute, deliver
      and perform its obligations under the Trust Agreement;

            (iii) the Issuer has been duly formed, is validly existing as a
      business trust under the laws of the State of Delaware, 12 Del. C. Section
      3801 et seq., and has power, authority and legal right to execute and
      deliver this Indenture, the Note Purchase Agreement, the Custodial
      Agreement, the Administration Agreement and the Sale and Servicing
      Agreement;

            (iv) assuming due authorization, execution and delivery hereof by
      the Indenture Trustee, the Indenture is a valid, legal and binding
      obligation of the Issuer, enforceable in accordance with its terms,
      subject to bankruptcy, insolvency, reorganization, arrangement,
      moratorium, fraudulent or preferential conveyance and other similar laws
      of general application affecting the rights of creditors generally and to
      general principles of equity (regardless of whether such enforcement is
      considered in a Proceeding in equity or at law);

            (v) the Notes, when executed and authenticated as provided herein
      and delivered against payment therefor, will be the valid, legal and
      binding obligations of the Issuer pursuant to the terms of this Indenture,
      entitled to the benefits of this Indenture, and will be enforceable in
      accordance with their terms, subject to bankruptcy, insolvency,
      reorganization, arrangement, moratorium, fraudulent or preferential
      conveyance and other similar laws of general application affecting the
      rights of creditors generally and to general principles of

                                       13
<PAGE>

      equity (regardless of whether such enforcement is considered in a
      Proceeding in equity or at law);

            (vi) Reserved;

            (vii) this Indenture is not required to be qualified under the Trust
      Indenture Act;

            (viii) no authorization, approval or consent of any governmental
      body having jurisdiction in the premises which has not been obtained by
      the Issuer is required to be obtained by the Issuer for the valid issuance
      and delivery of the Notes, except that no opinion need be expressed with
      respect to any such authorizations, approvals or consents as may be
      required under any state securities or "blue sky" laws; and

            (ix) any other matters that the Indenture Trustee may reasonably
      request.

            (e) An Officer's Certificate complying with the requirements of
      Section 11.01 hereof and stating that:

            (i) the Issuer is not in Default under this Indenture and the
      issuance of the Notes applied for will not result in any breach of any of
      the terms, conditions or provisions of, or constitute a default under, the
      Trust Agreement, any indenture, mortgage, deed of trust or other agreement
      or instrument to which the Issuer is a party or by which it is bound, or
      any order of any court or administrative agency entered in any Proceeding
      to which the Issuer is a party or by which it may be bound or to which it
      may be subject, and that all conditions precedent provided in this
      Indenture relating to the authentication and delivery of the Notes applied
      for have been complied with;

            (ii) the Issuer is the owner of all of the Loans, has not assigned
      any interest or participation in the Loans (or, if any such interest or
      participation has been assigned, it has been released) and has the right
      to Grant all of the Loans to the Indenture Trustee;

            (iii) the Issuer has Granted to the Indenture Trustee all of its
      right, title and interest in and to the Collateral, and has delivered or
      caused the same to be delivered to the Indenture Trustee; and

            (iv) all conditions precedent provided for in this Indenture
      relating to the authentication of the Notes have been complied with.

            Section 2.09. Release of Collateral. (a) Except as otherwise
provided by the terms of the Basic Documents, the Indenture Trustee shall
release the Collateral from the lien of this Indenture only upon receipt of an
Issuer Request accompanied by the written consent of the Majority Noteholders in
accordance with the procedures set forth in the Custodial Agreement. To the
extent it deems necessary, the Indenture Trustee may seek direction from the
Initial Noteholder with regard to the release of Collateral other than the
Custodial Loan File.

                                       14
<PAGE>

            (b) The Indenture Trustee shall, if requested by the Servicer,
temporarily release or cause the Custodian temporarily to release to the
Servicer the Custodial Loan File pursuant to the provisions of Section 5(b) of
the Custodial Agreement upon compliance by the Servicer with the provisions
thereof; provided, however, that the Custodian's records shall indicate the
Issuer's pledge to the Indenture Trustee under the Indenture.

            Section 2.10. Additional Note Principal Balance. In the event of
payment of Additional Note Principal Balance by the Noteholders as provided in
Section 2.01(c) of the Sale and Servicing Agreement, each Noteholder shall, and
is hereby authorized to, record on the schedule attached to its Note the date
and amount of any Additional Note Principal Balance advanced by it and each
repayment thereof; provided that failure to make any such recordation on such
schedule or any error in such schedule shall not adversely affect any
Noteholder's rights with respect to its Additional Note Principal Balance and
its right to receive interest payments in respect of the Additional Note
Principal Balance held by such Noteholder.

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture Trustee and the Issuer; provided that failure by a
Noteholder to make such recordation on its Note or any error in such notation
shall not adversely affect any Noteholder's rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in
respect thereof.

            Section 2.11. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that for all
purposes, including federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Collateral. The Issuer, by entering into this Indenture, and each
Noteholder, by its acceptance of a Note, agree to treat the Notes for all
purposes, including federal, state and local income, single business and
franchise tax purposes, as indebtedness of the Issuer. The Indenture Trustee
will have no responsibility for filing or preparing any tax returns.

            Section 2.12. Limitations on Transfer of the Notes.

            (a) The Notes have not been and will not be registered under the
Securities Act and will not be listed on any exchange. No transfer of a Note
shall be made unless such transfer is made pursuant to an effective registration
statement under the Securities Act and all applicable state securities laws or
is exempt from the registration requirements under the Securities Act and such
state securities laws. In order to assure compliance with the Securities Act and
state securities laws, any transfer of a Note shall be made (A) in reliance on
Rule 144A under the Securities Act, in which case, the Indenture Trustee shall
require that the transferor deliver a certification substantially in the form of
Exhibit B-1 hereto and that the transferee deliver a certification
substantially in the form of Exhibit B-3 hereto, or (B) to an institutional
"accredited investor" within the meaning of Rule 501 (a)(1), (2), (3) or (7) of
Regulation D under the Securities Act that is not a "qualified institutional
buyer," in which case the Indenture Trustee shall require that the transferee
deliver a certification substantially in the form of Exhibit B-2 hereto. The
Indenture Trustee shall not make any transfer or re-registration of the Notes if
after such transfer or re-registration, there would be more than five
Noteholders. Each Noteholder shall, by its acceptance of a Note, be deemed to
have represented and warranted that the number of ICA Owners with respect to all
of its Notes shall not exceed four.

                                       15
<PAGE>

            (b) The Note Registrar shall not register the transfer of any Note
unless the Indenture Trustee has received a certificate from the transferee to
the effect that either (i) the transferee is not an employee benefit plan or
other retirement plan or arrangement subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended (each, a "Plan"), and is not acting on
behalf of or investing the assets of a Plan or (ii) if the transferee is a Plan
or is acting on behalf of or investing the assets of a Plan, the conditions for
exemptive relief under at least one of the following prohibited transaction
class exemptions have been satisfied; Prohibited Transaction Class Exemption
("PTCE") 96-23 (relating to transactions effected by an "in-house asset
manager"), PTCE 95-60 (relating to transactions involving insurance company
general accounts),PTCE 91-38 (relating to transactions involving bank collective
investment funds), PTCE 90-1 (relating to transactions involving insurance
company pooled separate accounts) and PTCE 84-14 (relating to transactions
effected by a "qualified professional asset manager").

                                   ARTICLE III

                                    COVENANTS

            Section 3.01. Payment of Principal and/or Interest. The Issuer will
duly and punctually pay (or will cause to be paid duly and punctually) the
principal of and interest on the Notes in accordance with the terms of the
Notes, this Indenture and the Sale and Servicing Agreement. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Issuer
to such Noteholder for all purposes of this Indenture. The Notes shall be
non-recourse obligations of the Issuer and shall be limited in right of payment
to amounts available from the Collateral, as provided in this Indenture. The
Issuer shall not otherwise be liable for payments on the Notes. If any other
provision of this Indenture shall be deemed to conflict with the provisions of
this Section 3.01, the provisions of this Section 3.01 shall control.

            Section 3.02. Maintenance of Office or Agency. The Indenture Trustee
shall maintain at the Corporate Trust Office an office or agency where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Indenture Trustee shall give prompt written notice to the Issuer of
the location, and of any change in the location, of any such office or agency.

            Section 3.03. Money for Payments to Be Held in Trust. As provided in
Section 8.02(a) and (b) hereof, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Distribution Account pursuant to Section 8.02(c) hereof shall be made on behalf
of the Issuer by the Indenture Trustee or by the Paying Agent, and *** amounts
so withdrawn from the Distribution Account for payments of Notes shall be paid
over to the Issuer except as provided in this Section 3.03.

            Any Paying Agent shall be appointed by the Initial Noteholder with
written notice thereof to the Indenture Trustee. The Issuer shall not appoint
any Paying Agent (other than the Indenture Trustee or Servicer) which is not, at
the time of such appointment, a Depository Institution.

                                       16
<PAGE>

            The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:

            (i) hold all sums held by it for the payment of amounts due with
      respect to the Notes in trust for the benefit of the Persons entitled
      thereto until such sums shall be paid to such Persons or otherwise
      disposed of as herein provided and pay such sums to such Persons as herein
      provided;

            (ii) give the Indenture Trustee notice of any Default by the Issuer
      (or any other obligor upon the Notes) of which it has actual knowledge in
      the making of any payment required to be made with respect to the Notes;

            (iii) at any time during the continuance of any such Default, upon
      the written request of the Majority Noteholders or the Indenture Trustee,
      forthwith pay to the Indenture Trustee all sums so held in trust by such
      Paying Agent;

            (iv) immediately resign as a Paying Agent and forthwith pay to the
      Indenture Trustee all sums held by it in trust for the payment of Notes if
      at any time it ceases to meet the standards required to be met by a Paying
      Agent at the time of its appointment; and

            (v) comply with all requirements of the Code with respect to the
      withholding from any payments made by it on any Notes of any applicable
      withholding taxes imposed thereon and with respect to any applicable
      reporting requirements in connection therewith; provided, however, that
      with respect to withholding and reporting requirements applicable to
      original issue discount (if any) on the Notes, the Issuer shall have first
      provided the calculations pertaining thereto to the Indenture Trustee.

            The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.

            Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment shall at the expense and direction of the
Issuer cause to be published, once in a newspaper of general circulation in the
City of New York customarily published in the English

                                       17
<PAGE>

language on each Business Day, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Noteholders whose Notes have
been called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed at the last address of record
for each such Noteholder determinable from the records of the Indenture Trustee
or of any Paying Agent. Any costs and expenses of the Indenture Trustee and the
Paying Agent incurred in the holding of such funds shall be charged against such
funds. Monies so held shall not bear interest.

            Section 3.04. Existence. (a) Subject to subparagraph (b) of this
Section 3.04, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other State or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and the Collateral. The Issuer shall comply in all respects with the
covenants contained in the Trust Agreement, including without limitation, the
"special purpose entity" set forth in Section 4.1 thereof.

            (b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.

            (c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.

            Section 3.05. Protection of Collateral. The Issuer will from time to
time execute and deliver all such reasonable supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:

            (i) provide further assurance with respect to the Grant of all or
      any portion of the Collateral;

            (ii) maintain or preserve the lien and security interest (and the
      priority thereof) of this Indenture or carry out more effectively the
      purposes hereof;

            (iii) perfect, publish notice of or protect the validity of any
      Grant made or to be made by this Indenture;

            (iv) enforce any rights with respect to the Collateral; and

                                       18
<PAGE>

            (v) preserve and defend title to the Collateral and the rights of
      the Indenture Trustee and the Noteholders in such Collateral against the
      claims of all Persons and parties.

            The Issuer hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.

            Section 3.06. Negative Covenants. Without the written consent of the
Majority Noteholders, so long as any Notes are Outstanding, the Issuer shall
not:

            (i) except as expressly permitted by the Basic Documents, sell,
      transfer, exchange or otherwise dispose of any of the properties or assets
      of the Issuer, including those included in any part of the Trust Estate,
      unless directed to do so by the Noteholders as permitted herein;

            (ii) claim any credit on, or make any deduction from the principal
      or interest payable in respect of, the Notes (other than amounts properly
      withheld from such payments under the Code) or assert any claim against
      any present or former Noteholder by reason of the payment of the taxes
      levied or assessed upon any part of the Trust Estate;

            (iii) engage in any business or activity other than as expressly
      permitted by this Indenture and the other Basic Documents, other than in
      connection with, or relating to, the issuance of Notes pursuant to this
      Indenture, or amend this Indenture as in effect on the Closing Date other
      than in accordance with Article IX hereof;

            (iv) issue any debt obligations except under this Indenture;

            (v) incur or assume any indebtedness or guaranty any indebtedness of
      any Person, except for such indebtedness as may be incurred by the Issuer
      in connection with the issuance of the Notes pursuant to this Indenture;

            (vi) dissolve or liquidate in whole or in part or merge or
      consolidate with any other Person;

            (vii) (A) permit the validity or effectiveness of this Indenture to
      be impaired, or permit the lien of this Indenture to be amended,
      hypothecated, subordinated, terminated or discharged, or permit any Person
      to be released from any covenants or obligations with respect to the Notes
      except as may expressly be permitted hereby, (B) except as provided in the
      Basic Documents, 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 Trust Estate or any part thereof or any
      interest therein or the proceeds thereof (other than tax liens, mechanics'
      liens and other liens that arise by operation of law, in each case, on any
      Mortgaged Property and arising solely as a result of an action or omission
      of the related Borrowers) or (C) except as provided in the Basic
      Documents, permit any Person other than itself, the Owner Trustee and the
      Noteholders to have any right title or interest in the Trust Estate;

                                       19
<PAGE>

            (viii) remove the Administrator without the prior written consent of
      the Majority Noteholders; or

            (ix) take any other action or fail to take any action which may
      cause the Trust to be taxable as (a) an association pursuant to Section
      7701 of the Code and the corresponding regulations, or (b) as a taxable
      mortgage pool pursuant to Section 7701(i) of the Code.

            Section 3.07. Performance of Obligations; Servicing of Loans. (a)
The Issuer will not take any action and will use its best efforts not to permit
any action to be taken by others that would release any Person from any of such
Person's material covenants or obligations under any instrument or agreement
included in the Collateral or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as expressly provided
in the Basic Documents or such other instrument or agreement.

            (b) The Issuer may contract with or otherwise obtain the assistance
of other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer and the Administrator to assist the Issuer in performing its duties
under this Indenture.

            (c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, in the Basic Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
and the Majority Noteholders.

            (d) If the Issuer shall have knowledge of the occurrence of a
Servicing Event of Default, the Issuer shall promptly notify the Indenture
Trustee and the Initial Noteholder thereof, and shall specify in such notice the
action, if any, the Issuer is taking with respect to such default. If a
Servicing Event of Default shall arise from the failure of the Servicer to
perform any of its duties or obligations under the Sale and Servicing Agreement
with respect to the Loans, the Issuer shall take all reasonable steps available
to it to remedy such failure.

            (e) Reserved.

                                       20
<PAGE>

            (f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee. As soon as a successor servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such successor servicer.

            (g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee, amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of any Collateral
(except to the extent otherwise permitted by the Sale and Servicing Agreement)
or the Basic Documents, or waive timely performance or observance by the
Servicer or the Depositor under the Sale and Servicing Agreement; and (ii) that
any such amendment shall not (A) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Noteholders or (B) reduce the aforesaid percentage of the
Notes that is required to consent to any such amendment, without the consent of
Noteholders evidencing 100% Percentage Interests of the Outstanding Notes. If
any such amendment, modification, supplement or waiver shall so be consented to
by the Indenture Trustee, the Issuer agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as the
Indenture Trustee may deem necessary or appropriate in the circumstances.

            Section 3.08. Reserved.

            Section 3.09. Annual Statement as to Compliance. So long as the
Notes are Outstanding, the Issuer will deliver to the Indenture Trustee, within
120 days after the end of each fiscal year of the Issuer (commencing with the
fiscal year beginning on May 1, 2001), an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that:

            (i) a review of the activities of the Issuer during such year and of
      its performance under this Indenture has been made under such Authorized
      Officer's supervision; and

            (ii) to the best of such Authorized Officer's knowledge, based on
      such review, the Issuer has materially complied with all conditions and
      covenants under this Indenture throughout such year, or, if there has been
      a default in its compliance with any such condition or covenant,
      specifying each such default known to such Authorized Officer and the
      nature and status thereof.

            Section 3.10. Covenants of the Issuer. All covenants of the Issuer
in this Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.

                                       21
<PAGE>

            Section 3.11. Servicer's Obligations. The Issuer shall cause the
Servicer to comply with the Sale and Servicing Agreement.

            Section 3.12. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee and the
Noteholders and the holders of the Trust Certificates as contemplated by, and to
the extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement and (y) payments to the Indenture Trustee
pursuant to Section l(a)(ii) of the Administration Agreement. The Issuer will
not, directly or indirectly, make or cause to be made payments to or
distributions from the Distribution Account except in accordance with this
Indenture and the Basic Documents.

            Section 3.13. Treatment of Notes as Debt for All Purposes. The
Issuer shall, and shall cause the Administrator to, treat the Notes as
indebtedness for all purposes.

            Section 3.14. Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Initial Noteholder prompt written notice of each Event
of Default hereunder each default on the part of the Servicer or the Loan
Originator of their respective obligations under any of the Basic Documents.

            Section 3.15. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.

                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE

            Section 4.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to the Notes (except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.03,
3.04 and 3.10 hereof, (v) the rights, obligations and immunities of the
Indenture Trustee hereunder (including the rights of the Indenture Trustee under
Section 6.07 hereof and the obligations of the Indenture Trustee under Section
4.02 hereof) and (vi) the rights of Noteholders as beneficiaries hereof with
respect to the property so deposited with the Indenture Trustee payable to all
or any of them), and the Indenture Trustee, on demand of and at the expense of
the Issuer, shall execute proper instruments satisfactory to it, and prepared
and delivered to it by the Issuer, acknowledging satisfaction and discharge of
this Indenture with respect to the Notes, when all of the following have
occurred:

                                       22
<PAGE>

            (A) either

                  (1)   all Notes theretofore authenticated and delivered (other
                        than (i) Notes that have been destroyed, lost or stolen
                        and that have been replaced or paid as provided in
                        Section 2.04 hereof and (ii) Notes for the payment of
                        which money has theretofore been deposited in trust or
                        segregated and held in trust by the Issuer and
                        thereafter repaid to the Issuer or discharged from such
                        trust, as provided in Section 3.03 hereof) shall have
                        been delivered to the Indenture Trustee for
                        cancellation; or

                  (2)   all Notes not theretofore delivered to the Indenture
                        Trustee for cancellation

                        a.    shall have become due and payable, or

                        b.    are to be called for redemption within one year
                              under arrangements satisfactory to the Indenture
                              Trustee for the giving of notice of redemption by
                              the Indenture Trustee in the name, and at the
                              expense, of the Issuer,

                        c.    and the Issuer, in the case of clause a. or b.
                              above, has irrevocably deposited or caused
                              irrevocably to be deposited with the Indenture
                              Trustee cash or direct obligations of or
                              obligations guaranteed by the United States of
                              America (which will mature prior to the date such
                              amounts are payable), in trust for such purpose,
                              in an amount sufficient to pay and discharge the
                              entire indebtedness on such Notes not theretofore
                              delivered to the Indenture Trustee for
                              cancellation when due to the applicable Maturity
                              Date or the Redemption Date (if Notes shall have
                              been called for redemption pursuant to Section
                              10.01 hereof), as the case may be; and

            (B) the latest of (a) the payment in full of all outstanding
obligations under the Notes, (b) the payment in full of all unpaid Trust Fees
and Expenses and (c) the date on which the Issuer has paid or caused to be paid
all other sums payable hereunder by the Issuer; and

            (C) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each meeting the applicable
requirements of Section 11.01 hereof and, subject to Section 11.02 hereof, each
stating that all conditions precedent herein provided for, relating to the
satisfaction and discharge of this Indenture with respect to the Notes, have
been complied with.

            Section 4.02. Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or

                                       23
<PAGE>

through any Paying Agent, as the Indenture Trustee may determine, to the
Noteholders for the payment or redemption of which such moneys have been
deposited with the Indenture Trustee, of all sums due and to become due thereon
for principal and/or interest; but such moneys need not be segregated from other
funds except to the extent required herein or in the Sale and Servicing
Agreement or required by law.

            Section 4.03. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 hereof and thereupon such Paying Agent shall
be released from all further liability with respect to such moneys.

                                    ARTICLE V

                                    REMEDIES

            Section 5.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

            (a) notwithstanding any insufficiency of funds in the Distribution
Account for payment thereof on the related Payment Date, default in the payment
of any interest on any Note when the same becomes due and payable; or

            (b) notwithstanding any insufficiency of funds in the Distribution
Account for payment thereof on the related Payment Date, default in the payment
of any installment of the Overcollateralization Shortfall of any Note (i) on any
Payment Date or (ii) on the Maturity Date, or, to the extent that there are
funds available in the Distribution Account therefor, default in the payment of
any installment of the principal of any Note from such available funds, as a
result of the occurrence of a Rapid Amortization Trigger; or

            (c) the occurrence of a Servicer Event of Default; or

            (d) default in the observance or performance of any covenant or
agreement of the Issuer made in any Basic Document to which it is a party (other
than a covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section 5.01 specifically dealt with), or any
representation or warranty of the Issuer made in any Basic Document to which it
is a party or in any certificate or other writing delivered pursuant thereto or
in connection therewith proving to have been incorrect in any material respect
as of the time when the same shall have been made, and such default shall
continue or not be cured, or the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Issuer by the Indenture Trustee, or to
the Issuer, the Depositor and the Indenture Trustee by Noteholders evidencing at
least 25% Percentage Interests of the Outstanding Notes, a written

                                       24
<PAGE>

notice specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of Default
hereunder; or

            (e) default in the observance or performance of any covenant or
agreement of the Depositor made in any Basic Document to which it is a party or
any representation or warranty of the Depositor (except as otherwise expressly
provided in the Basic Documents with respect to representations and warranties
regarding the Loans) or Loan Originator made in any Basic Document to which they
are a party, proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue or not
be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days (or five days in the case of the
failure of the Loan Originator to make a payment in respect of the Transfer
Obligation) after there shall have been given, by registered or certified mail,
to the Issuer and the Depositor by the Indenture Trustee, or to the Issuer, the
Depositor and the Indenture Trustee by Noteholders evidencing at least 25%
Percentage Interests of the Outstanding Notes, a written notice specifying such
Default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or

            (f) default in the observance or performance of any covenant or
agreement of the Loan Originator made in any repurchase agreement, loan and
security agreement or other similar credit facility agreement entered into by
the Loan Originator and any third party for borrowed funds in excess of
$10,000,000, including any default which entitles any party to require
acceleration or prepayment of any indebtedness thereunder; or

            (g) the filing of a decree or order for relief by a court having
jurisdiction over the Issuer, the Depositor or the Loan Originator or all or
substantially all of the Collateral in an involuntary case under any applicable
federal or state bankruptcy, insolvency or other similar law now or hereafter in
effect, or the appointing of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer, the Depositor or the
Loan Originator or for all or substantially all of the Collateral, or the
ordering of the winding-up or liquidation of the affairs of the Issuer, the
Depositor or the Loan Originator, and such decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or

            (h) the commencement by the Issuer, the Depositor or the Loan
Originator 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
the Issuer, the Depositor or the Loan Originator to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer, the
Depositor or the Loan Originator or for any substantial part of the Collateral,
or the making by the Issuer, the Depositor or the Loan Originator of any general
assignment for the benefit of creditors, or the failure by the Issuer, the
Depositor or the Loan Originator generally to pay its respective debts as such
debts become due, or the taking of any action by the Issuer, the Depositor or
the Loan Originator in furtherance of any of the foregoing; or

            (i) a Change of Control of the Loan Originator; or

                                       25
<PAGE>


            (j) the Notes shall be Outstanding on the day after the end of the
Revolving Period.

            The Issuer shall deliver to the Indenture Trustee, within five days
after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clauses (d) or (e) above, the status of
such event and what action the Issuer or the Depositor, as applicable, is taking
or proposes to take with respect thereto.

            Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee, at the direction or upon the prior written consent of the
Majority Noteholders, may declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Noteholders), and upon any such declaration, the unpaid principal
amount of such Notes, together with accrued and unpaid interest thereon through
the date of acceleration, shall become immediately due and payable.

            At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Majority Noteholders, by written notice to the Issuer and the Indenture Trustee,
may rescind and annul such declaration and its consequences if:

            (a) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:

      1.    all payments of principal of and/or interest on all Notes and all
            other amounts that would then be due hereunder or upon such Notes if
            the Event of Default giving rise to such acceleration had not
            occurred; and

      2.    all sums paid or advanced by the Indenture Trustee hereunder and the
            reasonable compensation, expenses, disbursements and advances of the
            Indenture Trustee and its agents and counsel; and

            (b) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration, have
been cured or waived as provided in Section 5.12 hereof. No such rescission
shall affect any subsequent default or impair any right consequent thereto.

            Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in
the payment of any interest on any Note when the same becomes due and payable,
and such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to the Indenture Trustee, for the benefit of the
Noteholders, the whole amount then due and payable on such Notes for principal
and/or interest, with interest upon the overdue principal and, to the extent
payment at such rate of interest shall be legally enforceable, upon overdue
installments

                                       26
<PAGE>

of interest at the rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.

            (b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee shall at the direction of the Majority
Noteholders, subject to Section 5.06(c) institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Issuer or other
obligor upon such Notes and collect in the manner provided by law out of the
property of the Issuer or other obligor upon such Notes, wherever situated, the
moneys adjudged or decreed to be payable.

            (c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall at the direction of the Majority Noteholders, as more particularly
provided in Section 5.04 hereof, subject to Section 5.06(c) hereof, proceed to
protect and enforce its rights and the rights of the Noteholders by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.

            (d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section 5.03, shall be
entitled and empowered by intervention in such Proceedings or otherwise:

            (i) to file and prove a claim or claims for the whole amount of
      principal and/or interest owing and unpaid in respect of the Notes and to
      file such other papers or documents as may be necessary or advisable in
      order to have the claims of the Indenture Trustee (including any claim for
      reasonable compensation to the Indenture Trustee, each predecessor
      Indenture Trustee, and its agents, attorneys and counsel, and for
      reimbursement of all expenses and liabilities incurred, and all advances
      made, by the Indenture Trustee and each predecessor Indenture Trustee,
      except as a result of negligence or bad faith) and of the Noteholders
      allowed in such Proceedings;

            (ii) unless prohibited by applicable law and regulations, to vote on
      behalf of the Noteholders in any election of a trustee, a standby trustee
      or Person performing similar functions in any such Proceedings;

                                       27
<PAGE>

            (iii) to collect and receive any moneys or other property payable or
      deliverable on any such claims and to distribute all amounts received with
      respect to the claims of the Noteholders and the Indenture Trustee on
      their behalf; and

            (iv) to file such proofs of claim and other papers or documents as
      may be necessary or advisable in order to have the claims of the Indenture
      Trustee or the Noteholders allowed in any judicial proceedings relative to
      the Issuer, its creditors and its property; and any trustee, receiver,
      liquidator, custodian or other similar official in any such Proceeding is
      hereby authorized by each of such Noteholders to make payments to the
      Indenture Trustee and, in the event that the Indenture Trustee shall
      consent to the making of payments directly to such Noteholders, to pay to
      the Indenture Trustee such amounts as shall be sufficient to cover
      reasonable compensation to the Indenture Trustee, each predecessor
      Indenture Trustee and their respective agents, attorneys and counsel, and
      all other expenses and liabilities incurred and all advances made by the
      Indenture Trustee and each predecessor Indenture Trustee except as a
      result of negligence or bad faith.

            (e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.

            (f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, shall be for the ratable benefit of the Noteholders.

            (g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be.necessary to make any
Noteholder a party to any such Proceedings.

            Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee, at the direction of the
Majority Noteholders shall, do one or more of the following (subject to Section
5.05 hereof):

            (i) institute Proceedings in its own name and as trustee of an
      express trust for the collection of all amounts then payable on the Notes
      or under this Indenture with respect thereto, whether by declaration or
      otherwise, enforce any judgment obtained, and collect from the Issuer and
      any other obligor upon such Notes moneys adjudged due;

                                       28
<PAGE>

            (ii) institute Proceedings from time to time for the complete or
      partial foreclosure of this Indenture with respect to the Collateral;

            (iii) exercise any remedies of a secured party under the UCC and
      take any other appropriate action to protect and enforce the rights and
      remedies of the Indenture Trustee or the Noteholders; and

            (iv) sell the Collateral or any portion thereof or rights or
      interest therein in a commercially reasonable manner, at one or more
      public or private sales called and conducted in any manner permitted by
      law; provided, however, that the Indenture Trustee may not sell or
      otherwise liquidate the Collateral following an Event of Default, unless
      (A) the Holders of 100% Percentage Interests of the Outstanding Notes
      consent thereto, (B) the proceeds of such sale or liquidation
      distributable to the Noteholders are sufficient to discharge in full all
      amounts then due and unpaid upon such Notes for principal and/or interest
      or (C) the Indenture Trustee determines that the Collateral will not
      continue to provide sufficient funds for the payment of principal of and
      interest on the Notes as they would have become due if the Notes had not
      been declared due and payable, and the Indenture Trustee obtains the
      consent of Holders of not less than 66-2/3% Percentage Interests of the
      Outstanding Notes. In determining such sufficiency or insufficiency with
      respect to clause (B) and (C) of this subsection (a)(iv), the Indenture
      Trustee may, but need not, obtain and rely upon an opinion of an
      Independent investment banking or accounting firm of national reputation
      as to the feasibility of such proposed action and as to the sufficiency of
      the Collateral for such purpose.

            (b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:

            FIRST: in the following order of priority: (a) to the Indenture
      Trustee, an amount equal to all unreimbursed Indenture Trustee Fees and
      indemnities and any other amounts payable to the Indenture Trustee
      pursuant to the Basic Documents and to the Indenture Trustee or Sale
      Agents, as applicable, all reasonable fees and expenses incurred by them
      and their agents and representatives in connection with the enforcement of
      the remedies provided for in this Article V, (b) to the Custodian, an
      amount equal to all unpaid Custodian Fees and indemnities and any other
      amounts payable to the Custodian pursuant to the Basic Documents, (c) to
      the Servicer, an amount equal to (i) all unreimbursed Servicing
      Compensation and (ii) all unreimbursed Nonrecoverable Servicing Advances,
      and (d) to the Servicer, in trust for the Owner Trustee, an amount equal
      to the Owner Trustee Fee and all unpaid Owner Trustee Fees;

            SECOND: the Hedge Funding Requirement to the appropriate Hedging
      Counterparties;

            THIRD: to the Noteholders pro rata, all amounts in respect of
      interest due and owing under the Notes;

                                       29
<PAGE>

            FOURTH: to the Noteholders pro rata, all amounts in respect of
      unpaid principal of the Notes;

            FIFTH: to the Purchaser or any other Indemnified Party (as each such
      term is defined in the Note Purchase Agreement), amounts in respect of
      Issuer/Depositor Indemnities (as defined in the Trust Agreement) and to
      the Initial Noteholder, amounts in respect of Due Diligence Fees (as set
      forth in Section 11.15 of the Sale and Servicing Agreement) until such
      amounts are paid in full;

            SIXTH: to the Owner Trustee, for any amounts to be distributed pro
      rata to the holders of the Trust Certificates pursuant to the Trust
      Agreement.

            The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section 5.04. At least 15
days before such record date, the Indenture Trustee shall mail to each
Noteholder and the Issuer a notice that states the record date, the payment date
and the amount to be paid.

            Section 5.05. Optional Preservation of the Collateral. If the Notes
have been declared to be due and payable under Section 5.02 hereof following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Collateral. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to maintain possession
of the Collateral. In determining whether to maintain possession of the
Collateral, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.

            Section 5.06. Limitation of Suits. No Noteholder shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:

            (a) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;

            (b) the Noteholders evidencing not less than 25% Percentage
Interests of the Outstanding Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;

            (c) such Noteholder or Noteholders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;

            (d) the Indenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such Proceeding;
and

                                       30
<PAGE>

            (e) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 30-day period by the Majority
Noteholders.

            It is understood and intended that no one or more Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this indenture to affect, disturb or prejudice the rights of any
other Noteholders or to obtain or to seek to obtain priority or preference over
any other Noteholders or to enforce any right under this Indenture, except in
the manner herein provided.

            In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders,
neither of which evidences Percentage Interests of the Outstanding Notes greater
than 50%, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture and shall have no obligation or liability to any such group of
Noteholders for such action or inaction.

            Section 5.07. Unconditional Rights of Noteholders to Receive
Principal and/or Interest. Notwithstanding any other provisions in this
Indenture, any Noteholder shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the applicable Maturity Date thereof expressed in such
Note or in this Indenture (or, in the case of redemption, on or after the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Noteholder.

            Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.

            Section 5.09. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

            Section 5.10. Delay or Omission Not a Waiver. No delay or omission
of the Indenture Trustee or any Noteholder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.

                                       31
<PAGE>

            Section 5.11. Control by Noteholders. The Majority Noteholders shall
have the right to direct the time, method and place of conducting any Proceeding
for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided,
however, that:

            (a) such direction shall not be in conflict with any rule of law or
with this Indenture;

            (b) subject to the express terms of Section 5.04(a)(iv) hereof, any
direction to the Indenture Trustee to sell or liquidate the Collateral shall be
by Holders of Notes representing Percentage Interests of the Outstanding Notes
of not less than 100%;

            (c) if the conditions set forth in Section 5.05 hereof have been
satisfied and the Indenture Trustee elects to retain the Collateral pursuant to
such Section, then any direction to the Indenture Trustee by Holders of Notes
representing Percentage Interests of the Outstanding Notes of less than 100% to
sell or liquidate the Collateral shall be of no force and effect; and

            (d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.

            In connection with any sale of the Collateral in accordance with
paragraph (c) above, the Majority Noteholders may, in their sole discretion
appoint agents to effect the sale of the Collateral (such agents, "Sale
Agents"), which Sale Agents may be Affiliates of any Noteholder. The Sale Agents
shall be entitled to reasonable compensation in connection with such activities
from the proceeds of such sale.

            Notwithstanding the rights of the Noteholders set forth in this
Section 5.11. subject to Section 6.01 hereof, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.

            Section 5.12. Waiver of Past Defaults. The Majority Noteholders may
waive any past Default or Event of Default and its consequences, except a
Default (a) in the payment of principal of or interest on any of the Notes or
(b) in respect of a covenant or provision hereof that cannot be modified or
amended without the consent of each Noteholder. In the case of any such waiver,
the Issuer, the Indenture Trustee and Noteholders shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereto.

            Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.

                                       32
<PAGE>

            Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Noteholder by such Noteholder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate Percentage Interests of the
Outstanding Notes of more than 10% or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).

            Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

            Section 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Collateral or
upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b) hereof.

            Section 5.16. Performance and Enforcement of Certain Obligations.

            (a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense, the Issuer shall take all such lawful action
as the Indenture Trustee may request to compel or secure the performance and
observance by the Loan Originator and the Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement or the Loan Purchase Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Loan Originator or the Servicer thereunder

                                       33
<PAGE>

and the institution of legal or administrative actions or proceedings to compel
or secure performance by the Loan Originator or the Servicer of each of their
obligations under the Sale and Servicing Agreement and the Loan Purchase
Agreement.

            (b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in writing
or by telephone, confirmed in writing promptly thereafter) of the Majority
Noteholders shall, subject to Section 5.06(c) exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Loan Originator or the
Servicer under or in connection with the Sale and Servicing Agreement or the
Loan Purchase Agreement, including the right or power to take any action to
compel or secure performance or observance by the Loan Originator or the
Servicer, as the case may be, of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension, or waiver under the Sale and Servicing Agreement, and any right of
the Issuer to take such action shall be suspended.

                                   ARTICLE VI

                              THE INDENTURE TRUSTEE

            Section 6.01. Duties of Indenture Trustee. (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.

            (b) Except during the continuance of an Event of Default:

            (i) the Indenture Trustee shall undertake to perform such duties and
      only such duties as are specifically set forth in this Indenture and no
      implied covenants or obligations shall be read into this Indenture against
      the Indenture Trustee; and

            (ii) in the absence of bad faith on its part, the Indenture Trustee
      may conclusively rely, as to the truth of the statements and the
      correctness of the opinions expressed therein, upon certificates or
      opinions furnished to the Indenture Trustee and conforming to the
      requirements of this Indenture; provided, however, that the Indenture
      Trustee shall examine the certificates and opinions to determine whether
      or not they conform to the requirements of this Indenture to the extent
      specifically set forth herein.

            (c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:

            (i) this paragraph does not limit the effect of paragraph (b) of
      this Section 6.0l;

            (ii) the Indenture Trustee shall not be liable for any error of
      judgment made in good faith by a Responsible Officer unless it is proved
      that the Indenture Trustee was negligent in ascertaining the pertinent
      facts;

                                       34
<PAGE>

            (iii) the Indenture Trustee shall not be liable with respect to any
      action it takes or omits to take in good faith in accordance with a
      direction received by it pursuant to Section 5.11 hereof; and

            (iv) Reserved.

            (d) Reserved.

            (e) The Indenture Trustee shall not be liable for interest on any
money received by it and held in a Trust Account except as may be provided in
the Sale and Servicing Agreement or as the Indenture Trustee may agree in
writing with the Issuer.

            (f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.

            (g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it; provided, however, that the Indenture Trustee
shall not refuse or fail to perform any of its duties hereunder solely as a
result of nonpayment of its normal fees and expenses and provided, further, that
nothing in this Section 6.01(g) shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer's failure to pay the Indenture Trustee's
fees and expenses pursuant to Section 6.07 hereof.

            (h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section 6.01.

            (i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than an Event
of Default pursuant to Section 5.01(a) or (b) hereof) unless a Responsible
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.

            Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.

            (b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.

                                       35
<PAGE>

            (c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.

            (d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any action or inaction on the part of the Custodian.

            (e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.

            Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Section 6.11 hereof.

            Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.

            Section 6.05. Notices of Default. If a Default occurs and is
continuing and if it is actually known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder and each party to
the Master Disposition Confirmation Agreement notice of the Default within two
Business Days after it receives actual notice of such occurrence.

            Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information specifically requested
by each Noteholder and in the Indenture Trustee's possession and as may be
reasonably required to enable such Noteholder to prepare its federal and state
income tax returns.

            Section 6.07. Compensation and Indemnity. As compensation for its
services hereunder, the Indenture Trustee shall be entitled to receive, on each
Payment Date, the Indenture Trustee's Fee pursuant to Section 8.02(c) hereof
(which compensation shall not be limited by any law on compensation of a trustee
of an express trust) and shall be entitled to reimbursement by the Servicer for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer agrees to cause the Servicer to indemnify the Indenture Trustee, the
Paying Agent and their officers, directors, employees and agents against any and
all loss, liability or expense (including reasonable attorneys' fees) incurred
by it or them in

                                       36
<PAGE>

connection with the administration of this trust and the performance of its or
their duties under the Basic Documents. The Indenture Trustee shall notify the
Issuer and the Servicer promptly of any claim for which it may seek indemnity.
Failure by the Indenture Trustee so to notify the Issuer and the Servicer shall
not relieve the Issuer or the Servicer of its or their obligations hereunder.
The Issuer shall, or shall cause the Servicer to, defend any such claim;
provided, however, that if the defendants with respect to any such claim include
the Issuer and/or the Servicer and the Indenture Trustee, and the Indenture
Trustee shall have reasonably concluded that there may be legal defenses
available to it which are different from or in addition to those defenses
available to the Issuer or the Servicer, as the case may be, the Indenture
Trustee shall have the right, at the expense of the Servicer, to select separate
counsel to assert such legal defenses and to otherwise defend itself against
such claim. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.

            The Issuer's payment obligations to the Indenture Trustee pursuant
to this Section 6.07 shall survive the discharge of this Indenture and the
termination or resignation of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of a Default specified in Section 5.01(f)
or (g) hereof with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.

            Notwithstanding anything in this Section 6.07 to the contrary, all
amounts due the Indenture Trustee hereunder shall be payable in the first
instance by the Servicer and. if not paid by the Servicer within 60 days after
payment is requested from the Servicer by the Indenture Trustee, in accordance
with the priorities set forth in Section 5.01 of the Sale and Servicing
Agreement.

            Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Majority Noteholders may
remove the Indenture Trustee (with the consent of the Majority
Certificateholders, not to be unreasonably withheld) by so notifying the
Indenture Trustee and may appoint a successor Indenture Trustee; provided, that
all of the reasonable costs and expenses incurred by the Indenture Trustee in
connection with such removal shall be reimbursed to it prior to the
effectiveness of such removal. The Issuer shall remove the Indenture Trustee if:

            (a) the Indenture Trustee fails to comply with Section 6.11 hereof;

            (b) the Indenture Trustee is adjudged a bankrupt or insolvent;

            (c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or

            (d) the Indenture Trustee otherwise becomes incapable of acting.

                                       37
<PAGE>

            If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.

            A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.

            If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Majority Noteholders may petition any court
of competent jurisdiction for the appointment of a successor Indenture Trustee.

            If the Indenture Trustee fails to comply with Section 6.11 hereof,
any Noteholder may petition any court of competent jurisdiction for the removal
of the Indenture Trustee and the appointment of a successor Indenture Trustee.

            Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 6.08. the Issuer's and the Administrator's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Indenture
Trustee.

            Section 6.09. Successor Indenture Trustee by Merger. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, however, that such corporation or banking association shall otherwise
be qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Majority Noteholders prior written notice of any such transaction.

            In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.

            Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee.

            (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may

                                       38
<PAGE>

at the time be located, the Indenture Trustee shall have the power and may
execute and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Collateral, or any
part hereof, and, subject to the other provisions of this Section 6.10, such
powers, duties, obligations, rights and trusts as the Indenture Trustee may
consider necessary or desirable. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 6.11 hereof and no notice to Noteholders of the appointment of any
co-trustee or separate trustee shall be required under Section 6.08 hereof.

            (b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:

            (i) all rights, powers, duties and obligations conferred or imposed
      upon the Indenture Trustee shall be conferred or imposed upon and
      exercised or performed by the Indenture Trustee and such separate trustee
      or co-trustee jointly (it being understood that such separate trustee or
      co-trustee is not authorized to act separately without the Indenture
      Trustee joining in such act), except to the extent that under any law of
      any jurisdiction in which any particular act or acts are to be performed
      the indenture Trustee shall be incompetent or unqualified to perform such
      act or acts, in which event such rights, powers, duties and obligations
      (including the holding of title to the Collateral or any portion thereof
      in any such jurisdiction) shall be exercised and performed singly by such
      separate trustee or co-trustee, but solely at the direction of the
      Indenture Trustee;

            (ii) no trustee hereunder shall be personally liable by reason of
      any act or omission of any other trustee hereunder; and

            (iii) the Indenture Trustee may at any time accept the resignation
      of or remove any separate trustee or co-trustee.

            (c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.

            (d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

                                       39
<PAGE>

            Section 6.11. Eligibility. The Indenture Trustee shall (i) have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition or (ii) otherwise be acceptable in
writing to the Majority Noteholders.

                                   ARTICLE VII

                         NOTEHOLDERS' LISTS AND REPORTS

            Section 7.01. Issuer to Furnish Indenture Trustee Names and
Addresses of Noteholders. The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Noteholders as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished.

            Section 7.02. Preservation of Information. The Indenture Trustee
shall preserve, in as current a form as is reasonably practicable, the names and
addresses of the Noteholders contained in the most recent list furnished to the
Indenture Trustee as provided in Section.7.01 hereof and the names and addresses
of Noteholders received by the Indenture Trustee in its capacity as Note
Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.01 upon receipt of a new list so furnished.

            Section 7.03. 144A Information. The Indenture Trustee, to the extent
it has any such information in its possession, shall provide to any Noteholder
and any prospective transferee designated by any such Noteholder information
regarding the Notes and the Loans and such other information as shall be
necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4)
under the Securities Act for transfer of any such Note without registration
thereof under the Securities Act pursuant to the registration exemption provided
by Rule 144A under the Securities Act.

                                  ARTICLE VIII

                      ACCOUNTS, DISBURSEMENTS AND RELEASES

            Section 8.01. Collection of Money. General. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of, and shall receive and collect, directly and without intervention or
assistance of any intermediary, all money and other property payable to or
receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Collateral, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice

                                       40
<PAGE>

to any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V hereof.

            Section 8.02. Trust Accounts; Distributions. (a) On or prior to the
Closing Date, the Issuer shall cause the Servicer to establish and maintain, in
the name of the Indenture Trustee for the benefit of the Noteholders, or on
behalf of the Owner Trustee for the benefit of the Securityholders, the Trust
Accounts as provided in the Sale and Servicing Agreement. The Servicer shall
deposit amounts into each of the Trust Accounts in accordance with the terms
hereof, the Sale and Servicing Agreement and the Payment Statements.

            (b) Collection Account. With respect to the Collection Account, the
Paying Agent shall make such withdrawals and distributions as specified in
Section 5.01(c)(1) of the Sale and Servicing Agreement in accordance with the
terms thereof.

            (c) Distribution Account. With respect to the Distribution Account,
the Paying Agent shall make (i) such deposits as specified in Sections
5.01(c)(2)(A), 5.01(c)(2)(B), 5.05(e), 5.05(f), 5.05(g), and 5.05(h) of the Sale
and Servicing Agreement and (ii) such withdrawals and distributions as specified
in Section 5.01(c)(3) of the Sale and Servicing Agreement in accordance with the
terms thereof.

            (d) Transfer Obligation Account. With respect to the Transfer
Obligation Account, the Paying Agent shall make (i) such deposits as specified
in Section 5.01(c)(3)(vii) of the Sale and Servicing Agreement and (ii) such
withdrawals and distributions as specified in Sections 5.05(d), 5.05(e),
5.05(f), 5.05(g), 5.05(h), and 5.05 (i) of the Sale and Servicing Agreement in
accordance with the terms thereof.

            (e) Reserved.

            (f) Advance Account. With respect to the Advance Account, the Issuer
shall cause the Servicer to make such withdrawals specified in Section 2.06 of
the Sale and Servicing Agreement.

            Section 8.03. General Provisions Regarding Trust Accounts. (a) All
or a portion of the funds in the Collection Account and the Transfer Obligation
Account shall be invested in Permitted Investments in accordance with the
provisions of Section 5.03(b) of the Sale and Servicing Agreement. The Indenture
Trustee will not make any investment of any funds or sell any investment held in
the Collection Account or the Transfer Obligation Account (other than in
Permitted Investments in accordance with Section 5.03(b) of the Sale and
Servicing Agreement) unless the security interest Granted and perfected in such
account will continue to be perfected in such investment or the proceeds of such
sale, in either case without any further action by any Person, as evidenced by
an Opinion of Counsel delivered to the Indenture Trustee by the Initial
Noteholder or the Servicer, as the case may be.

            (b) Subject to Section 6.01 (c) hereof, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in the Collection
Account or the Transfer Obligation Account resulting from any loss on any
Eligible Investment included therein.

                                       41
<PAGE>

            (c) If (i) the Initial Noteholder or the Servicer, as the case may
be, shall have failed to give investment directions for any funds on deposit in
the Collection Account or the Transfer Obligation Account to the Indenture
Trustee by 2:00 p.m. New York City time (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event
of Default shall have occurred and be continuing with respect to the Notes but
the Notes shall not have been declared due and payable pursuant to Section 5.02
hereof or (iii) if such Notes shall have been declared due and payable following
an Event of Default, amounts collected or receivable from the Collateral are
being applied in accordance with Section 5.05 hereof as if there had not been
such a declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Collection Account and the
Transfer Obligation Account in one or more Permitted Investments specified in
item (3) in the definition thereof.

            Section 8.04. The Paying Agent. The initial Paying Agent shall be
the Servicer. The Paying Agent may be removed by the Initial Noteholder in its
sole discretion at any time. Upon removal of the Paying Agent, the Initial
Noteholder will appoint a successor Paying Agent within 30 days; provided that
the Indenture Trustee will be the Paying Agent until such successor is
appointed. Upon receiving written notice from the Initial Noteholder that the
Paying Agent has been terminated, the Indenture Trustee will immediately
terminate the Paying Agent's access to any and all Trust Accounts.

            Section 8.05. Release of Collateral. (a) Subject to the payment of
its reasonable fees and expenses pursuant to Section 6.07 hereof, the Indenture
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments acceptable to it and prepared and delivered to it by the
Issuer to release property from the lien of this Indenture, or convey the
Indenture Trustee's interest in the same, without recourse, representation or
warranty in a manner as provided in the Custodial Agreement and under
circumstances that are not inconsistent with the provisions of this Indenture
and the other Basic Documents. No party relying upon an instrument executed by
the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.

            (b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Noteholders (and their Affiliates), the
Initial Noteholder, the Sales Agents, the Indenture Trustee, the Owner Trustee
and the Custodian under the Basic Documents have been paid, release any
remaining portion of the Collateral that secured the Notes from the lien of this
Indenture and release to the Issuer or any other Person entitled thereto any
funds then on deposit in the Trust Accounts. The Indenture Trustee shall release
property from the lien of this Indenture pursuant to this subsection (b) only
upon receipt of an Issuer Request accompanied by an Officer's Certificate and an
Opinion of Counsel meeting the applicable requirements of Section 11.01 hereof.

            Section 8.06. Opinion of Counsel. Except to the extent specifically
permitted by the terms of the Basic Documents, the Indenture Trustee shall
receive at least seven Business Days' prior notice when requested by the Issuer
to take any action pursuant to Section 8.05(a) hereof, accompanied by copies of
any instruments involved, and the Indenture Trustee may also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, from the Issuer concluding that all
conditions precedent to the taking of such action have

                                       42
<PAGE>

been complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders in contravention of the
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the
Collateral. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such
action.

                                   ARTICLE IX

                            SUPPLEMENTAL INDENTURES

            Section 9.01. Supplemental Indentures Without the Consent of the
Noteholders. Without the consent of any Noteholder but with prior notice to the
Majority Noteholders, the Issuer and the Indenture Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Indenture Trustee, for any of the following purposes:

            (i) to correct or amplify the description of any property at any
      time subject to the lien of this Indenture, or better to assure, convey
      and confirm unto the Indenture Trustee any property subject or required to
      be subjected to the lien of this Indenture, or to subject to the lien of
      this Indenture additional property;

            (ii) to evidence the succession, in compliance with the applicable
      provisions hereof, of another Person to the Issuer, and the assumption by
      any such successor of the covenants of the Issuer herein and in the Notes
      contained;

            (iii) to add to the covenants of the Issuer, for the benefit of the
      Noteholders, or to surrender any right or power herein conferred upon the
      Issuer;

            (iv) to convey, transfer, assign, mortgage or pledge any property to
      or with the Indenture Trustee;

            (v) to cure any ambiguity, to correct or supplement any provision
      herein or in any supplemental indenture that may be inconsistent with any
      other provision herein or in any supplemental indenture or to make any
      other provisions with respect to matters or questions arising under this
      Indenture or in any supplemental indenture; provided, however, that such
      action shall not adversely affect the interests of the Noteholders; or

            (vi) to evidence and provide for the acceptance of the appointment
      hereunder by a successor trustee with respect to the Notes and to add to
      or change any of the provisions of this Indenture as shall be necessary to
      facilitate the administration of the trusts hereunder by more than one
      trustee, pursuant to the requirements of Article VI hereof.

            The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.

                                       43
<PAGE>

            Section 9.02. Supplemental Indentures with Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with the consent of the Majority Noteholders, by Act of such Noteholders
delivered to the Issuer and the Indenture Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of any Noteholder under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of each Noteholder affected thereby:

            (a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal balance thereof, the interest rate
thereon or the Termination Price with respect thereto, change the provisions of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Collateral to payment of principal of or interest on the Notes,
or change any place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V hereof, to the payment of any
such amount due on the Notes on or after the respective due dates thereof (or,
in the case of redemption, on or after the Redemption Date);

            (b) reduce the Percentage Interest, 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 compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;

            (c) modify or alter the provisions of the definition of the term
"Outstanding" or "percentage Interest";

            (d) reduce the Percentage Interest of the Outstanding Notes, the
consent of the Holders of which is required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.04
hereof;

            (e) modify any provision of this Section 9.02 except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;

            (f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to adversely affect the rights of
the Noteholders to the benefit of any provisions for the mandatory redemption of
the Notes contained herein; or

            (g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive any Noteholder
of the security provided by the lien of this Indenture.

                                       44
<PAGE>

            The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon each Noteholder, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.

            In connection with requesting the consent of the Noteholders
pursuant to this Section 9.02, the Indenture Trustee shall mail to the Holders
of the Notes to which such amendment or supplemental indenture relates a notice
prepared by the Issuer setting forth in general terms the substance of such
supplemental indenture. It shall not be necessary for any Act of Noteholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall approve the
substance thereof.

            Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.

            Section 9.04. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.

            Section 9.05. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.

                                    ARTICLE X

                        REDEMPTION OF NOTES; PUT OPTION

            Section 10.01. Redemption. The Servicer may, at its option, effect
an early redemption of the Notes on any Payment Date on or after the Clean-up
Call Date. The Servicer shall effect such early termination in the manner
specified in and subject to the provisions of Section 10.02 of the Sale and
Servicing Agreement.

                                       45
<PAGE>

            The Servicer shall furnish the Indenture Trustee with notice of any
such redemption in order to facilitate the Indenture Trustee's compliance with
its obligation to notify the Noteholders of such redemption in accordance with
Section 10.02 hereof.

            Section 10.02. Form of Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 10 days prior to the applicable
Redemption Date to each Noteholder, as of the close of business on the Record
Date preceding the applicable Redemption Date, at such Noteholder's address or
facsimile number appearing in the Note Register.

            All notices of redemption shall state:

            (i) the Redemption Date;

            (ii) that on the Redemption Date Noteholders shall receive the Note
      Redemption Amount; and

            (iii) the place where such Notes are to be surrendered for payment
      of the Termination Price (which shall be the office or agency of the
      Issuer to be maintained as provided in Section 3.02 hereof).

            Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give to any Noteholder notice of redemption, or any defect therein, shall not
impair or affect the validity of the redemption of any other Note.

            Section 10.03. Notes Payable on Redemption Date. The Notes to be
redeemed shall following notice of redemption as required by Section 10.02
hereof (in the case of redemption pursuant to Section 10.01) hereof, on the
Redemption Date become due and payable at the Note Redemption Amount and (unless
the Issuer shall default in the payment of the Note Redemption Amount) no
interest shall accrue thereon for any period after the date to which accrued
interest is calculated for purposes of calculating the Note Redemption Amount.
The Issuer may not redeem the Notes unless all outstanding obligations under the
Notes have been paid in full.

            Section 10.04. Put Option. The Majority Noteholders may, at their
option, put all or any portion of the Note Principal Balance of the Notes to the
Issuer on any date upon giving notice in the manner set forth in Section 10.05.
On each Put Date, the Issuer shall purchase the Note Principal Balance in the
manner specified in and subject to the provisions of Section 10.04 of the Sale
and Servicing Agreement.

            Section 10.05. Form of Put Option Notice. Notice of exercise of a
Put Option under Section 10.04 hereof shall be given by the Majority Noteholders
(including to the Indenture Trustee) by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 5 days prior to the date on which
the Notes shall be repurchased by the Issuer.

                                       46
<PAGE>

            Section 10.06. Notes Payable on Put Date. The Note Principal Balance
to be put to the Issuer shall, following notice of the exercise of the Put
Option as required by Section 10.05 hereof, on the Put Date become due and
payable at the Note Redemption Amount and (unless the Issuer shall default in
the payment of the Note Redemption Amount) no interest shall accrue thereon for
any period after the date to which accrued interest is calculated for purposes
of calculating the Note Redemption Amount.

                                   ARTICLE XI

                                  MISCELLANEOUS

            Section 11.01. Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture (except with respect to the Servicer's
servicing activity in the ordinary course of its business), the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.

            Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                  (1)   a statement that each signatory of such certificate or
                        opinion has read or has caused to be read such covenant
                        or condition and the definitions herein relating
                        thereto;

                  (2)   a brief statement as to the nature and scope of the
                        examination or investigation upon which the statements
                        or opinions contained in such certificate or opinion are
                        based;

                  (3)   a statement that, in the opinion of each such signatory,
                        such signatory has made such examination or
                        investigation as is necessary to enable such signatory
                        to express an informed opinion as to whether or not such
                        covenant or condition has been complied with; and

                  (4)   a statement as to whether, in the opinion of each such
                        signatory, such condition or covenant has been complied
                        with.

            Section 11.02. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.

                                       47
<PAGE>

            Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Loan Originator, the Issuer or the
Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Loan Originator, the Issuer or the
Administrator, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.

            Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

            Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI hereof.

            Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 11.03.

            (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.

            (c) The ownership of Notes shall be proved by the Note Register.

            (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Noteholder shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done

                                       48
<PAGE>

by the Indenture Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.

            Section 11.04. Notices, etc., to Indenture Trustee and Issuer. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture shall be
in writing and if such request, demand, authorization, direction, notice,
consent, waiver or act of Noteholders is to be made upon, given or furnished to
or filed with:

            (i) the Indenture Trustee by any Noteholder or by the Issuer shall
      be sufficient for every purpose hereunder if made, given, furnished or
      filed in writing (including by facsimile) to or with the Indenture Trustee
      at its Corporate Trust Office, or

            (ii) the Issuer by the Indenture Trustee or by any Noteholder shall
      be sufficient for every purpose hereunder if in writing and made, given,
      furnished, filed or transmitted via facsimile to the Issuer at: Option One
      Owner Trust 2001-1A, c/o Wilmington Trust Company as Owner Trustee, One
      Rodney Square North. 1100 North Market Street, Wilmington. Delaware 19890,
      Attention: Corporate Trust Department, telecopy number: (302) 651-8882,
      telephone number: (302) 651-1000, or at any other address or facsimile
      number previously furnished in writing to the Indenture Trustee by the
      Issuer or the Administrator. The Issuer shall promptly transmit any notice
      received by it from the Noteholders to the Indenture Trustee.

            Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have duly been given.

            Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.

            In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.

                                       49
<PAGE>

            Section 11.06. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.

            Section 11.07. Successors and Assigns. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.

            Section 11.08. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

            Section 11.09. Benefits of Indenture. Nothing in this Indenture or
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder. and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.

            Section 11.10. Legal Holidays. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

            Section 11.11. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS. RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

            Section 11.12. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

            Section 11.13. Recording of Indenture. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee; provided, however, that the
expense of such Opinion of Counsel shall in no event be an expense of the
Indenture Trustee) to the effect that such recording is necessary either for the
protection of the Noteholders or any other Person secured hereunder or for the
enforcement of any right or remedy granted to the Indenture Trustee under this
Indenture.

            Section 11.14. Trust Obligation. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes

                                       50
<PAGE>

or, except as expressly provided for in Article VI hereof, under this Indenture
or any certificate or other writing delivered in connection herewith or
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director, employee, agent
or "control person" within the meaning of the Securities Act and the Exchange
Act, of the Indenture Trustee or the Owner Trustee in its individual capacity,
any holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or of any successor or assign of the Indenture Trustee or the
Owner Trustee in its individual capacity, except as any such Person may
expressly have agreed (it being understood that the Indenture Trustee and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such partner, owner or beneficiary of the Issuer shall be fully liable,
to the extent provided by applicable law, for any unpaid consideration for
stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity. For all purposes of this Indenture, in the performance of
any duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.

            Section 11.15. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law, in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.

            Section 11.16. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Indenture Trustee, during
the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may reasonably be requested and at the
expense of the Servicer. The Indenture Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the
Indenture Trustee may reasonably determine that such disclosure is consistent
with its obligations hereunder.

            Section 11.17. Limitation on Liability. It is expressly understood
and agreed by the parties hereto that (a) this Indenture is executed and
delivered by Wilmington Trust Company, not individually or personally, but
solely as Owner Trustee of Option One Owner Trust 2001-1A, in the exercise of
the powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the

                                       51
<PAGE>

payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Indenture or any other related documents.

                                       52
<PAGE>

            IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.

                                    OPTION ONE OWNER TRUST 2001-1A

                                    By: Wilmington Trust Company not in its
                                        individual capacity but solely as Owner
                                        Trustee

                                    By: /s/ Mary Kay Pupillo
                                        ----------------------------------------
                                    Name: Mary Kay Pupillo
                                    Title: Senior  Financial Services Officer

                                    WELLS FARGO BANK MINNESOTA, NATIONAL
                                    ASSOCIATION, as Indenture Trustee

                                    By: /s/ Amy Doyle
                                        ----------------------------------------
                                    Name: Amy Doyle
                                    Title: Assistant Vice President
<PAGE>

STATE OF DELAWARE )

                  )SS.:

COUNTY OF  NEW CASTLE

            BEFORE ME, the undersigned authority, a Notary Public in and for
said county and state, on this day personally appeared Mary Kay Pupillo, known
to me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
Wilmington Trust Company, a Delaware banking corporation, not in its individual
capacity, but solely as Owner Trustee on behalf of OPTION ONE OWNER TRUST 2001-1
A. a Delaware business trust, and that such person executed the same as the act
of said business trust for the purpose and consideration therein expressed, and
in the capacities therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 17th day of April, 2001.

                                                /s/ Susanne M. Gula
                                                --------------------------------
                                                Notary Public

                                                     SUSANNE M.GULA
(Seal)                                               NOTARY PUBLIC
                                         My Commission expires November 21, 2001
My commission expires:

_______________________

<PAGE>

STATE OF  Maryland )

                      )SS.:

COUNTY OF ____________)

            BEFORE ME, the undersigned authority, a Notary Public in and for
said county and state, on this day personally appeared Amy Doyle, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of WELLS FARGO BANK
MINNESOTA, NATIONAL ASSOCIATION, and that such person executed the same as the
act of said corporation for the purpose and consideration therein stated.

            GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 18 day of April. 2001

                                    /s/ Joan M. Clark
                                    --------------------------------------------
                                    Notary Public

 (Seal)                            Joan M. Clark
                                  NOTARY PUBLIC
 My commission expires:        BALTIMORE CITY, MARYLAND
________________________________Comm. Exp. August 10, 2004

<PAGE>

                                    EXHIBIT A

                                  FORM OF NOTES

THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
MAXIMUM NOTE PRINCIPAL BALANCE SHOWN ON THE FACE HEREOF. ANY PURCHASER OF THIS
NOTE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE
INDENTURE TRUSTEE.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(l), (2), (3) OR (7) OF RULE 501 UNDER THE
1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE WITH THE REQUIREMENTS OF
THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A "PLAN"),
AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE
TRANSFEREE IS A PLAN OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A
PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT LEAST ONE OF THE FOLLOWING
PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN SATISFIED: PROHIBITED
TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO TRANSACTIONS EFFECTED BY
AN "IN-HOUSE ASSET

                                       A-1
<PAGE>

MANAGER"), PTCE 95-60 (RELATING TO TRANSACTIONS INVOLVING INSURANCE COMPANY
GENERAL ACCOUNTS), PTCE 91-38 (RELATING TO TRANSACTIONS INVOLVING BANK
COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS INVOLVING
INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING TO
TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER").

                                       A-2
<PAGE>

Maximum Note Principal Balance: ($)__________________________
Initial Percentage Interest: ________%
No._

                         OPTION ONE OWNER TRUST 2001-1A

                              MORTGAGE-BACKED NOTES

            OPTION ONE OWNER TRUST 2001-1A, a Delaware business trust (the
"Issuer"). for value received, hereby promises to pay to_____________, or
registered assigns (the "Noteholder"), the principal sum of__________________
____________________________________________________($__________________) or so
much thereof as may be advanced and outstanding hereunder and to pay interest on
such principal sum or such part thereof as shall remain unpaid from time to
time, at the rate and at the times provided in the Sale and Servicing
Agreement and the Indenture. Principal of this Note is payable on each Payment
Date in an amount equal to the result obtained by multiplying (i) the Percentage
Interest of this Note by (ii) the principal amount distributed in respect of
such Payment Date.

            The Outstanding Note Principal Balance of this Note bears interest
at the Note Interest Rate. On each Payment Date amounts in respect of interest
on this Note will be paid in an amount equal to the result obtained by
multiplying (i) the Percentage Interest of this Note by (ii) the aggregate
amount paid in respect of interest on the Notes with respect to such Payment
Date.

            Capitalized terms used but not defined herein have the meanings set
forth in the Indenture (the "Indenture"), dated as of April 1, 2001 between the
Issuer and Wells Fargo Bank Minnesota. National Association, as Indenture
Trustee (the "Indenture Trustee") or, if not defined therein, the Sale and
Servicing Agreement (the "Sale and Servicing Agreement"), dated as of April 1,
2001 among the Issuer, the Depositor, the Servicer, the Loan Originator and the
Indenture Trustee on behalf of the Noteholders.

            By its acceptance of this Note, each Noteholder covenants and
agrees, until the earlier of (a) the termination of the Revolving Period and (b)
the Maturity Date, on each Transfer Date to advance amounts in respect of
Additional Note Principal Balance hereunder to the Issuer, subject to and in
accordance with the terms of the Indenture, the Sale and Servicing Agreement and
the Note Purchase Agreement.

            In the event of an advance of Additional Note Principal Balance by
the Noteholders as provided in Section 2.01(c) of the Sale and Servicing
Agreement, each Noteholder shall, and is hereby authorized to, record on the
schedule attached to its Note the date and amount of any Additional Note
Principal Balance advanced by it, and each repayment thereof; provided that
failure to make any such recordation on such schedule or any error in such
schedule shall not adversely affect any Noteholder's rights with respect to its
Additional Note Principal Balance and its right to receive interest payments in
respect of the Additional Note Principal Balance held by such Noteholder.

                                       A-3
<PAGE>

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture Trustee and the Issuer; provided that failure by a
Noteholder to make such recordation on its Note or any error in such notation
shall not adversely affect any Noteholder's rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in
respect thereof.

            The Servicer may, at its option, effect an early redemption of the
Notes for an amount equal to the Note Redemption Amount on any Payment Date on
or after the Clean-up Call Date. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans at a purchase price, payable in cash,
equal to the Termination Price.

            Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

            The statements in the legend set forth above are an integral part of
the terms of this Note and by acceptance hereof each Holder of this Note agrees
to be subject to and bound by the terms and provisions set forth in such legend.

            Unless the Certificate of authentication hereon shall have been
executed by an authorized officer of the Indenture Trustee, by manual signature,
this Note shall not entitle the Noteholder hereof to any benefit under the
Indenture or the Sale and Servicing Agreement and/or be valid for any purpose.

            THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK AND WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PROVISIONS THEREOF.

                                       A-4
<PAGE>

            IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer, as of the date set
forth below.

Date: April_______, 2001

                                   OPTION ONE OWNER TRUST 2001-1A

                                   By: Wilmington Trust Company, not in its
                                       individual capacity but solely as Owner
                                       Trustee under the Trust Agreement

                                   By: _________________________________________
                                                 Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes designated above and referred to in the
within-mentioned Indenture.

Date: April_______, 2001

                                   WELLS FARGO BANK MINNESOTA. NATIONAL
                                   ASSOCIATION, not in its individual capacity
                                   but solely as Indenture Trustee

                                   By: _________________________________________
                                                 Authorized Signatory

                                       A-5
<PAGE>

                                [Reverse of Note]

            This Note is one of the duly authorized Notes of the Issuer,
designated as its Mortgage-Backed Notes (herein called the "Notes"), all issued
under the Indenture. Reference is hereby made to the Indenture and all
indentures supplemental thereto, and the Sale and Servicing Agreement for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Holders of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the Indenture
or the Sale and Servicing Agreement, the provisions of the Indenture or the Sale
and Servicing Agreement, as applicable, shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture and the Sale and Servicing Agreement.

            The principal of and interest on this Note are payable in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied in accordance with the Indenture
and the Sale and Servicing Agreement.

            The entire unpaid principal amount of this Note shall be due and
payable on the earlier of the Maturity Date, the Redemption Date and the Final
Put Date, if any, pursuant to Articles X of the Sale and Servicing Agreement and
the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount
of the Notes shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing and the Indenture Trustee, at the
direction or upon the prior written consent of the Majority Noteholders, has
declared the Notes to be immediately due and payable in the manner provided in
Section 5.02 of the Indenture. All principal payments on the Notes shall be made
pro rata to the Holders of the Notes entitled thereto.

            The Collateral secures this Note and all other Notes equally and
ratably without prejudice, priority or distinction between any Note and any
other Note. The Notes are non-recourse obligations of the Issuer and are limited
in right of payment to amounts available from the Collateral, provided in the
Indenture. The Issuer shall not otherwise be liable for payments on the Notes,
and none of the owners, agents, officers, directors, employees, or successors or
assigns of the Issuer shall be personally liable for any amounts payable, or
performance due, under the Notes or the Indenture.

            Any installment of interest or principal on this Note shall be paid
on the applicable Payment Date to the Person in whose name this Note (or one or
more Predecessor Notes) is registered in the Note Register as of the close of
business on the related Record Date by wire transfer in immediately available
funds to the account specified in writing by the related Noteholder to the
extent provided by the Indenture and otherwise by check mailed to the
Noteholder.

            Any reduction in the principal amount of this Note (or any one or
more Predecessor Notes) effected by any payments made on any Payment Date shall
be binding upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. Any increase in the principal amount of this Note (or any
one or more Predecessor Notes) effected by payments to the Issuer of Additional
Note Principal Balances shall be binding upon the Issuer and shall inure to the
benefit of all future Holders of this

                                       A-6
<PAGE>

Note and of any Note issued upon the registration of transfer hereof or in
exchange hereof or in lieu hereof, whether or not noted hereon.

            As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in the form attached hereto duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agent's Medallion Program
("STAMP"), and thereupon one or more new Notes of authorized denominations and
in the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the issuer may require
the Noteholder to pay a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director employee or "control person" within the meaning of the
1933 Act and the Exchange Act of the Indenture Trustee or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees by accepting the benefits of the Indenture that
such Noteholder will not at any time institute against the Issuer, or join in
any institution against the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes or the Basic Documents.

            The Issuer has entered into the Indenture and this Note is issued
with the intention that, for federal, state and local income, single business
and franchise tax purposes, the Notes will qualify as indebtedness of the
Issuer secured by the Collateral. Each Noteholder, by acceptance of a Note,
agrees to treat the Notes for federal, state and local income, single business
and franchise tax purposes as indebtedness of the Issuer. Each Noteholder, by
its acceptance of a Note, represents and warrants that the number of ICA Owners
with respect to all of its Notes shall not exceed four.

            Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose

                                       A-7
<PAGE>

name this Note (as of the day of determination or as of such other date as may
be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and none of the Issuer, the
Indenture Trustee or any such agent shall be affected by notice to the contrary.

            The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Majority Noteholders. The Indenture
also contains provisions permitting the Holders of Notes representing specified
Percentage Interests of the Outstanding Notes, on behalf of all of the
Noteholders, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note (or any one or more
Predecessor Notes) shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of any Noteholder.

            The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.

            The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.

            No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.

            Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.

                                       A-8
<PAGE>

                                   ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee:

            FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:

________________________________________________________________________________
                         (name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.

Dated:___________________________

                                                                              */
                                               _________________________________

                                                     Signature Guaranteed:

                                                                              */
                                               _________________________________

- ----------
*/NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of STAMP.

                                       A-9
<PAGE>

                                Schedule to Note
                          dated as of April_______, 2001
                       of OPTION ONE OWNER TRUST 2001-1A

<TABLE>
<CAPTION>
Date of advance of  Amount of advance                                   Note Principal
 Additional Note    of Additional Note   Percentage   Aggregate Note      Balance of
Principal Balance   Principal Balance     Interest   Principal Balance       Note
- ------------------  ------------------  -----------  -----------------  --------------
<S>                 <C>                 <C>          <C>                <C>
                                           100%
- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------

- ------------------  ------------------  -----------  -----------------  --------------
</TABLE>

                                      A-10
<PAGE>

                                  EXHIBIT B-1

                    FORM OF RULE 144A TRANSFEROR CERTIFICATE

Wells Fargo Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044

      Re: Option One Owner Trust 2001-1A

      Reference is hereby made to the Indenture dated as of April 1, 2001 (the
"INDENTURE") between Option One Owner Trust 2001-1A (the "TRUST") and Wells
Fargo Bank Minnesota, National Association (the "INDENTURE TRUSTEE").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Sale and Servicing Agreement dated as of April 1, 2001 among the
Trust, Option One Loan Warehouse Corporation (the "DEPOSITOR"). Option One
Mortgage Corporation (the "SERVICER" and the "LOAN ORIGINATOR") and the
Indenture Trustee.

      The undersigned (the "TRANSFEROR") has requested a transfer of
$___________________ current principal balance Notes to [insert name of
transferee].

      In connection with such request, and in respect of such Notes, the
Transferor hereby certifies that such Notes are being transferred in accordance
with (i) the transfer restrictions set forth in the Indenture and the Notes and
(ii) Rule 144A under the Securities Act of 1933, as amended to a purchaser that
the Transferor reasonably believes is a "qualified institutional buyer" within
the meaning of Rule 144A purchasing for its own account or for the account of a
"qualified institutional buyer," which purchaser is aware that the sale to it is
being made in reliance upon Rule 144A, in a transaction meeting the requirements
of Rule 144A and in accordance with any applicable securities laws of any state
of the United States or any other applicable jurisdiction.

      This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor.

                                                ________________________________
                                                [Name of Transferor]

                                                By: ____________________________
                                                Name:
                                                Title:

Dated: _______________, ___________

                                      B-1-1
<PAGE>

                                   EXHIBIT B-2

                       FORM OF TRANSFEREE CERTIFICATE FOR
                       INSTITUTIONAL ACCREDITED INVESTOR

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2001-1A

      Re: Option One Owner Trust 2001-1A

      In connection with our proposed purchase of $___________ Note Principal
Balance Mortgage-Backed Notes (the "OFFERED NOTES") issued by Option One Owner
Trust 2001-1A, we confirm that:

(1)   We understand that the Offered Notes have not been, and will not be,
      registered under the Securities Act of 1933, as amended (the "1933 ACT")
      or any state securities laws, and may not be sold except as permitted in
      the following sentence. We agree, on our own behalf and on behalf of any
      accounts for which we are acting as hereinafter stated, that if we should
      sell any Offered Notes we will do so only (A) pursuant to a registration
      statement which has been declared effective under the 1933 Act, (B) for so
      long as the Offered Notes are eligible for resale pursuant to Rule 144A
      under the 1933 Act, to a Person we reasonably believe is a "qualified
      institutional buyer" as defined in Rule 144A that purchases for its own
      account or for the account of a qualified institutional buyer to whom
      notice is given that the transfer is being made in reliance on Rule 144A,
      (C) to an institutional "accredited investor" within the meaning of
      subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the 1933 Act (an
      "INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Offered Notes
      for its own account, or for the account of such an Institutional
      Accredited Investor, for investment purposes and not with a view to, or
      for offer or sale in connection with, any distribution in violation of the
      1933 Act, in each case in compliance with the requirements of the
      Indenture dated as of April 1, 2001 between Option One Owner Trust 2001-1A
      and Wells Fargo Bank Minnesota. National Association, as Indenture
      Trustee, and applicable state securities laws: and we further agree, in
      the capacities stated above, to provide to any person purchasing any of
      the Offered Notes from us a notice advising such purchaser that resales of
      the Offered Notes are restricted as stated herein.

(2)   We understand that, in connection with any proposed resale of any Offered
      Notes to an Institutional Accredited Investor, we will be required to
      furnish to the Indenture Trustee and the Depositor a certification from
      such transferee as provided in Section 2.12 of the Indenture to confirm
      that the proposed sale is being made pursuant to an exemption from, or in
      a transaction not subject to, the registration requirements of the 1933
      Act and applicable state securities laws. We further understand that the
      Offered Notes purchased by us will bear a legend to the foregoing effect.

                                      B-2-1
<PAGE>

(3)   We are acquiring the Offered Notes for investment purposes and not with a
      view to or for offer or sale in connection with any distribution in
      violation of the 1933 Act. We have such knowledge and experience in
      financial and business matters as to be capable of evaluating the merits
      and risks of our investment in the Offered Notes, and we and any account
      for which we are acting are each able to bear the economic risk of such
      investment.

(4)   We are an Institutional Accredited Investor and we are acquiring the
      Offered Notes purchased by us for our own account or for one or more
      accounts (each of which is an Institutional Accredited Investor) as to
      each of which we exercise sole investment discretion.

(5)   We have received such information as we deem necessary in order to make
      our investment decision.

(6)   We either (i) are not, and are not acquiring the Offered Notes on behalf
      of or with the assets of, an employee benefit plan or other retirement
      plan or arrangement subject to Title I of ERISA or Section 4975 of the
      Code, or (b) are, or are acquiring the Offered Notes on behalf of or with
      the assets of, an employee benefit plan or other retirement plan or
      arrangement subject to Title 1 of ERISA of Section 4975 of the Code and
      the conditions for exemptive relief under at least one of the following
      prohibited transaction class exemptions have been satisfied: Prohibited
      Transaction Class Exemption ("PTCE") 96-23 (relating to transactions
      effected by an "in-house asset manager"), PTCE 95-60 (relating to
      transactions involving insurance company general accounts). PTCE 91-38
      (relating to transactions involving bank collective investment funds),
      PTCE 90-1 (relating to transactions involving insurance company pooled
      separate accounts), and PTCE 84-14 (relating to transactions effected by a
      "qualified professional asset manager").

      Terms used in this letter which are not otherwise defined herein have the
respective meanings assigned thereto in the Indenture.

      You and the Depositor are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.

                                                ________________________________
                                                [Name of Transferor]

                                                By: ____________________________
                                                Name:
                                                Title:

Dated:________________, ___________

                                      B-2-2
<PAGE>

                                   EXHIBIT B-3

                    FORM OF RULE 144A TRANSFEREE CERTIFICATE

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2001-1A

      Re: Option One Owner Trust 2001-1A

      1. The undersigned is the _________________ of ___________________ (the
"INVESTOR"), a [corporation duly organized] and existing under the laws
of ________________________ on behalf of which he makes this affidavit.

      2. The Investor either (i) is not, and is not acquiring the Offered Notes
on behalf of or with the assets of, an employee benefit plan or other retirement
plan or arrangement subject to Title I of ERISA or Section 4975 of the Code, or
(b) is, or is acquiring the Offered Notes on behalf of or with the assets of, an
employee benefit plan or other retirement plan or arrangement subject to Title I
of ERISA of Section 4975 of the Code and the conditions for exemptive relief
under at least one of the following prohibited transaction class exemptions have
been satisfied: Prohibited Transaction Class Exemption ("PTCE") 96-23 (relating
to transactions effected by an "in-house asset manager"). PTCE 95-60 (relating
to transactions involving insurance company general accounts), PTCE 91-38
(relating to transactions involving bank collective investment funds), PTCE 90-1
(relating to transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (relating to transactions effected by a "qualified professional
asset manager").

      3. The Investor understands that the Offered Notes have not been, and will
not be, registered under the Securities Act of 1933, as amended (the "1933 ACT")
or any state securities laws, and may not be sold except as permitted in the
following sentence. The Investor agrees, on its own behalf and on behalf of any
accounts for which it is acting as hereinafter stated, that if it should sell
any Offered Notes it will do so only (A) pursuant to a registration statement
which has been declared effective under the 1933 Act, (B) for so long as the
Offered Notes are eligible for resale pursuant to Rule 144A under the 1933 Act,
to a Person it reasonably believes is a "qualified institutional buyer" as
defined in Rule 144A that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the transfer is being
made in reliance on Rule 144A, (C) to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
1933 Act (an "INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Offered
Notes for its own account, or for the account of such an Institutional
Accredited Investor, for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution in violation of the 1933 Act,
in each case in compliance with the requirements of the Indenture dated as of
April 1, 2001 between Option One Owner Trust 2001-1A and Wells Fargo Bank
Minnesota, National Association, as Indenture Trustee, and applicable state
securities laws; and the Investor further agrees, in the capacities stated
above, to provide to any person purchasing

                                      B-3-1
<PAGE>

any of the Offered Notes from it a notice advising such purchaser that resales
of the Offered Notes are restricted as stated herein.

                   [FOR TRANSFERS IN RELIANCE UPON RULE 144A]

      4. The Investor is a "qualified institutional buyer" (as such term is
defined under Rule 144A under the Securities Act of 1933, as amended (the "1933
ACT"), and is acquiring the Offered Notes for its own account or as a fiduciary
or agent for others (which others also are "qualified institutional buyers").
The Investor is familiar with Rule 144A under the 1933 Act, and is aware that
the transferor of the Offered Notes and other parties intend to rely on the
statements made herein and the exemption from the registration requirements of
the 1933 Act provided by Rule 144A.

                                                ________________________________
                                                [Name of Transferor]

                                                By: ____________________________
                                                Name:
                                                Title:

Dated: _________________, __________

                                      B-3-2
<PAGE>

                                    EXHIBIT C

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR." FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE WITH THE REQUIREMENTS OF
THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A "PLAN"),
AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE
TRANSFEREE IS A PLAN, OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A
PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT LEAST ONE OF THE FOLLOWING
PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN SATISFIED: PROHIBITED
TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO TRANSACTIONS EFFECTED BY
AN "IN-HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO TRANSACTIONS INVOLVING
INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING TO TRANSACTIONS
INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS
INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING
TO TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER").

                                       C-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.50
<SEQUENCE>10
<FILENAME>c91685exv10w50.txt
<DESCRIPTION>AMENDMENT NO. 4 TO THE INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.50

                              AMENDMENT NUMBER FOUR
                                     to the
                                   INDENTURE,
             dated as of April 1, 2001, and as amended and restated
                     through and including November 25, 2003
                                     between
                         OPTION ONE OWNER TRUST 2001-1A
                                       and
                             WELLS FARGO BANK, N.A.

            This AMENDMENT NUMBER FOUR (this "Amendment") is made and is
effective as of this 16th day of April, 2004, between Option One Owner Trust
2001-1A (the "Issuer") and Wells Fargo Bank, N.A. (formerly known as Wells Fargo
Bank Minnesota, National Association), as Indenture Trustee (the "Indenture
Trustee"), to the Indenture dated as of April 1, 2001, and as amended and
restated through and including November 25, 2003 (the "Indenture"), between the
Issuer and the Indenture Trustee.

                                    RECITALS

            WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

            NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants herein
contained, the parties hereto hereby agree as follows:

            SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

            SECTION 2. Amendment.

            (a) The Granting Clause of the Indenture is hereby amended by
deleting it in its entirety and replacing it with the following:

                                "GRANTING CLAUSE

            Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Noteholders, all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to: (i) such Loans as from time to time are
subject to the Sale and Servicing Agreement as listed in the Loan Schedule, as
the same may be amended or supplemented on each Transfer Date and by the removal
of Deleted Loans and Unqualified Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Custodial Loan
Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest
and principal with respect to each Loan and Residual Security received on or
after the related Transfer Cut-off Date, (iv) such assets as from time to time
are identified as Foreclosure Property,

<PAGE>

(v) such assets and funds as are from time to time deposited in the Distribution
Account, Collection Account and the Transfer Obligation Account, including,
without limitation, amounts on deposit in such accounts that are invested in
Permitted Investments, (vi) lenders' rights under all Mortgage Insurance
Policies and to any Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds
and Released Mortgaged Property Proceeds, (viii) all right, title and interest
of the Trust (but none of the obligations) in and to the obligations of Hedging
Counterparties under Hedging Instruments; (ix) all right, title and interest of
each of the Depositor, the Loan Originator and the Trust in and under the Basic
Documents including, without limitation, the obligations of the Loan Originator
under the Loan Purchase and Contribution Agreement, the Master Disposition
Confirmation Agreement and the Residual Securities Transfer Agreement, and all
proceeds of any of the foregoing, (x) all right, title and interest of the
Issuer in and to the Sale and Servicing Agreement, including the Issuer's right
to cause the Loan Originator to repurchase Loans and Residual Securities from
the Issuer under certain circumstances described therein), (xi) all right, title
and interest (but none of the obligations) of the Trust in, to and under the
Advance Note and all Additional Note Balances thereunder, (xii) all right, title
and interest (but none of the obligations) of the Trust in, to and under the
Advance Documents, (xiii) such Residual Securities as from time to time are
subject to this Agreement as listed in the Residual Securities Schedule, as the
same may be amended or supplemented on each Transfer Date and by the removal of
Deleted Residual Securities and Unqualified Residual Securities and by the
addition of Qualified Substitute Residual Securities, together with the Loan
Documents relating thereto and all proceeds thereof, (xiv) all other Property of
the Trust from time to time and (xv) all present and future claims, demands,
causes of action and choses in action in respect of any or all of the foregoing
and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").

            The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.

            The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the Noteholders may adequately and effectively be
protected."

            (b) Section 1.01 of the Indenture is hereby amended by adding the
following definition:

            "Residual Security" Any security sold to the Trust hereunder and
pledged to the Indenture Trustee, which security must be (i) a mortgage-backed
security issued by Option One Mortgage Acceptance Corp. and evidencing an
interest in a securitization trust backed by residential mortgage loans, which
mortgage loans are serviced by Option One Mortgage Corporation (in such

                                       2
<PAGE>

capacity, "Option One") (including, without limitation, securities designated as
class C certificates and class P certificates that meet the foregoing criteria)
or (ii) a net interest margin security issued by a trust sponsored by Option One
and backed by class C certificates and/or Class P certificates, which
certificates are in turn backed by residential mortgage loans serviced by Option
One."

            (c) Section 1.01 of the Indenture is hereby amended by deleting the
definition of "Maturity Date" in its entirety and replacing it with the
following definition:

            "Maturity Date: means, with respect to the Notes, April 30, 2004."

            (d) Section 2.08(e)(ii) of the Indenture is hereby amended by
deleting such subsection it in its entirety and replacing it with the following:

            "(ii) the Issuer is the owner of all of the Loans and the Residual
Securities, has not assigned any interest or participation in the Loans or the
Residual Securities (or, if any such interest or participation has been
assigned, it has been released) and has the right to Grant all of the Loans and
the Residual Securities to the Indenture Trustee;"

            (e) Section 3.08 of the Indenture is hereby amended by deleting such
section in its entirety and replacing it with the following:

            "Section 3.08. Assignment of Rights. The Issuer grants and assigns
to the Initial Noteholder for the benefit of the Secured Parties all rights of
the Issuer to enforce the covenants and conditions set forth in the Advance
Note, the Advance Documents, the Residual Securities and the Loan Documents
relating to the Residual Securities and all voting rights and rights of the
Issuer to give any waivers or consents required or allowed under the Advance
Note, the Advance Documents and the Loan Documents relating to the Residual
Securities, and such waivers and consents shall be binding upon the Issuer as if
the Issuer had given the same. The Issuer hereby constitutes and irrevocably
appoints the Initial Noteholder, with full power of substitution and revocation,
as the Issuer's true and lawful agent and attorney-in-fact, with the power to
the full extent permitted by law, to affix to any certificates and documents
representing the Advance Note or any Residual Security the endorsements
delivered with respect thereto, and to transfer or cause the transfer of the
Advance Note and each Residual Security, or any part thereof, on the books of
the Advance Trust or the issuer of such Residual Security, as applicable, to the
name of the Indenture Trustee on behalf of the Secured Parties or any nominee of
hereof, and thereafter to exercise with respect to such Advance Note or Residual
Security, all the rights, powers and remedies of an owner. The power of attorney
granted pursuant to this Indenture and all authority hereby conferred are
granted and conferred solely to protect the Secured Parties respective interest
in the Collateral and shall not impose any duty upon the Initial Noteholder to
exercise any power. The Issuer shall execute any documentation including,
without limitation, any powers of attorney and/or irrevocable proxies, requested
by the Initial Noteholder to effectuate such assignment. The Issuer shall, or
shall cause the Receivables Seller and the Loan Originator (as applicable) to,
provide the Initial Noteholder with copies of all reports, notices, statements
and certificates delivered under the Advance Documents or the Loan Documents
relating to the Residual Securities, and any other information that the Initial
Noteholder shall reasonably request. Delivery of such reports, notices,
information and documents to the Initial Noteholder under this section is for
informational purposes only and the Initial Noteholders's receipt

                                       3
<PAGE>

of such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Issuer's compliance with any of its covenants. The foregoing grant and
assignment are powers coupled with an interest and are irrevocable."

            (f) Section 7.03 of the Indenture is hereby amended by deleting such
section in its entirety and replacing it with the following:

            "Section 7.03. 144A Information. The Indenture Trustee, to the
extent it has any such information in its possession, shall provide to any
Noteholder and any prospective transferee designated by any such Noteholder
information regarding the Notes, the Loans, the Residual Securities and such
other information as shall be necessary to satisfy the condition to eligibility
set forth in Rule 144A(d)(4) under the Securities Act for transfer of any such
Note without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A under the Securities Act."

            (g) The seventh paragraph of Exhibit A to the Indenture is hereby
amended by deleting such paragraph in its entirety and replacing it with the
following:

            "The Servicer may, at its option, effect an early redemption of the
Notes for an amount equal to the Note Redemption Amount on any Payment Date on
or after the Clean-up Call Date. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans and the Residual Securities at a
purchase price, payable in cash, equal to the Termination Price."

            SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture.

            SECTION 4. Limited Effect. Except as expressly amended and modified
by this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or document executed in connection therewith
or herewith, or in any certificate, letter or communication issued or made
pursuant to, or with respect to, the Indenture, any reference in any of such
items to the Indenture being sufficient to refer to the Indenture as amended
hereby.

            SECTION 5. Fees and Expenses. The Issuer covenants to pay as and
when billed by the Initial Noteholder all of the reasonable out-of-pocket costs
and expenses incurred in connection with the transactions contemplated hereby
and in the other Basic Documents including, without limitation, (i) all
reasonable fees, disbursements and expenses of counsel to the Initial Noteholder
and (ii) all reasonable fees and expenses of the Indenture Trustee and its
counsel.

            SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

                                       4
<PAGE>

            SECTION 7. Counterparts. This Amendment may be executed by each of
the parties hereto on any number of separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.

            SECTION 8. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1A in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Amendment or any other related documents.

                            [signature page follows]

                                       5
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.

                                OPTION ONE OWNER TRUST 2001-1A

                                By: Wilmington Trust Company, not in its
                                individual capacity but solely as owner trustee

                                By: /s/ Rachel L. Simpson
                                    --------------------------------------------
                                Name: Rachel L. Simpson
                                Title: Financial Services Officer

                                WELLS FARGO BANK, N.A., as Indenture Trustee

                                By: /s/ REID DENNY
                                    --------------------------------------------
                                Name: REID DENNY
                                Title: VICE PRESIDENT
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.51
<SEQUENCE>11
<FILENAME>c91685exv10w51.txt
<DESCRIPTION>AMENDMENT NO. 5 TO THE INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.51

                             AMENDMENT NUMBER FIVE
                                     to the
                                   INDENTURE,
             dated as of April 1, 2001, and as amended and restated
                    through and including November 25, 2003
                                    between
                         OPTION ONE OWNER TRUST 2001-1A
                                      and
                             WELLS FARGO BANK, N.A.

            This AMENDMENT NUMBER FIVE (this "Amendment") is made and is
effective as of this 30th day of April, 2004, between Option One Owner Trust
2001-1A (the "Issuer") and Wells Fargo Bank, N.A. (formerly known as Wells Fargo
Bank Minnesota, National Association), as Indenture Trustee (the "Indenture
Trustee"), to the Indenture dated as of April 1, 2001, and as amended and
restated through and including November 25, 2003 (the "Indenture"), between the
Issuer and the Indenture Trustee.

                                    RECITALS

            WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

            NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants herein
contained, the parties hereto hereby agree as follows:

            SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

            SECTION 2. Amendment.

            (a) Section 1.01 of the Indenture is hereby amended by deleting the
definition of "Maturity Date" in its entirely and replacing it with the
following definition:

            "Maturity Date: means, with respect to the Notes, April 29, 2005.

            SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture.

<PAGE>

            SECTION 4. Limited Effect. Except as expressly amended and modified
by this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or document executed in connection therewith
or herewith, or in any certificate, letter or communication issued or made
pursuant to, or with respect to, the Indenture, any reference in any of such
items to the Indenture being sufficient to refer to the Indenture as amended
hereby.

            SECTION 5. Fees and Expenses. The Issuer covenants to pay as and
when billed by the Initial Noteholder all of the reasonable out-of-pocket costs
and expenses incurred in connection with the transactions contemplated hereby
and in the other Basic Documents including, without limitation, (i) all
reasonable fees, disbursements and expenses of counsel to the Initial Noteholder
and (ii) all reasonable fees and expenses of the Indenture Trustee and its
counsel.

            SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

            SECTION 7. Counterparts. This Amendment may be executed by each of
the parties hereto on any number of separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.

            SECTION 8. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1A in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Amendment or any other related documents.

                            [signature page follows]

                                       2
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.

                                OPTION ONE OWNER TRUST 2001-1A

                                By: Wilmington Trust Company, not in its
                                individual capacity but solely as owner trustee

                                By: /s/ Mary Kay Pupillo
                                    --------------------------------------------
                                Name: Mary Kay Pupillo
                                Title: Senior Financial Services Officer

                                WELLS FARGO BANK, N.A., as Indenture Trustee

                                By: /s/ Amy Doyle
                                    --------------------------------------------
                                Name: Amy Doyle
                                Title: Assistant Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.52
<SEQUENCE>12
<FILENAME>c91685exv10w52.txt
<DESCRIPTION>AMENDMENT NO. 6 TO THE INDENTURE
<TEXT>
<PAGE>

                                                                   Exhibit 10.52

                              AMENDMENT NUMBER SIX
                                     to the
                         AMENDED AND RESTATED INDENTURE,
                         dated as of November 25, 2003,
                                     between
                       OPTION ONE OWNER TRUST 2001-1A and
                             WELLS FARGO BANK, N.A.

            This AMENDMENT NUMBER SIX (this "Amendment") is made and is
effective as of this 29th day of April, 2005, between Option One Owner Trust
2001-1A (the "Issuer") and Wells Fargo Bank, N.A., as Indenture Trustee (the
"Indenture Trustee"), to the Amended and Restated Indenture, dated as of
November 25, 2003 (the "Indenture"), between the Issuer and the Indenture
Trustee.

                                    RECITALS

            WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

            NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants herein
contained, the parties hereto hereby agree as follows:

            SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

            SECTION 2. Amendment. Effective as of April 29, 2005, Section 1.01
of the Indenture is hereby amended by deleting in its entirety the definition of
"Maturity Date" and replacing it with the following:

            "Maturity Date" means, with respect to the Notes, April 28, 2006.

            SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture and the other Basic Documents.

            SECTION 4. Limited Effect. Except as expressly amended and modified
by this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or

<PAGE>

document executed in connection therewith or herewith, or in any certificate,
letter or communication issued or made pursuant to, or with respect to, the
Indenture, any reference in any of such items to the Indenture being sufficient
to refer to the Indenture as amended hereby.

            SECTION 5. Fees and Expenses. The Issuer covenants to pay as and
when billed by the Initial Noteholder all of the reasonable out-of-pocket costs
and expenses incurred in connection with the transactions contemplated hereby
and in the other Basic Documents including, without limitation, (i) all
reasonable fees, disbursements and expenses of counsel to the Initial Noteholder
and (ii) all reasonable fees and expenses of the Indenture Trustee and its
counsel.

            SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

            SECTION 7. Counterparts. This Amendment may be executed by each of
the parties hereto on any number of separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.

            SECTION 8. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1A in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Amendment or any other related documents.

                            [signature page follows]

                                       2
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.

                                 OPTION ONE OWNER TRUST 2001-1A

                                 By: Wilmington Trust Company, not in its
                                 individual capacity but solely as owner trustee

                                 By: /s/ Mary K Pupillo
                                     -------------------------------------------
                                 Name: Mary K. Pupillo
                                 Title: Assistant Vice President

                                 WELLS FARGO BANK, N.A., as Indenture Trustee

                                 By: Darron C. Woodus
                                 Name: Darron C. Woodus
                                 Title: Assistant Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.53
<SEQUENCE>13
<FILENAME>c91685exv10w53.txt
<DESCRIPTION>AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.53

================================================================================

                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

                                      among

                         OPTION ONE OWNER TRUST 2001-1A
                                   as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION
                                  as Depositor

                                       and

                   GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
                                  as Purchaser

                           Dated as of April 16, 2004

                         OPTION ONE OWNER TRUST 2001-1A
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
                                   ARTICLE I

                                  DEFINITIONS
SECTION 1.01. Certain Defined Terms.....................................    1
SECTION 1.02. Other Definitional Provisions.............................    3

                                   ARTICLE II

                      COMMITMENT; CLOSING AND PURCHASES OF
                       ADDITIONAL NOTE PRINCIPAL BALANCES
SECTION 2.01. Commitment; Collateral Value Increase Dates...............    3
SECTION 2.02. Closing...................................................    4

                                   ARTICLE III

                        TRANSFER DATES AND FUNDING DATES
SECTION 3.01. Transfer Dates............................................    4
SECTION 3.02. Funding Dates.............................................    5

                                   ARTICLE IV

                             CONDITIONS PRECEDENT TO
                           EFFECTIVENESS OF COMMITMENT
SECTION 4.01. Closing Subject to Conditions Precedent...................    6

                                   ARTICLE V

                       REPRESENTATIONS AND WARRANTIES OF
                          THE ISSUER AND THE DEPOSITOR
SECTION 5.01. Issuer....................................................    9
SECTION 5.02. Securities Act............................................   11
SECTION 5.03. No Fee....................................................   11
SECTION 5.04. Information...............................................   11
SECTION 5.05. The Purchased Note........................................   11
SECTION 5.06. Use of Proceeds...........................................   11
SECTION 5.07. The Depositor.............................................   12
SECTION 5.08. Taxes, etc................................................   12
SECTION 5.09. Financial Condition.......................................   12
</TABLE>

                                        i
<PAGE>

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES
                         WITH RESPECT TO THE PURCHASER
SECTION 6.01.   Organization............................................   12
SECTION 6.02.   Authority, etc..........................................   12
SECTION 6.03.   Securities Act..........................................   13
SECTION 6.04.   Conflicts With Law......................................   13
SECTION 6.05.   Conflicts With Agreements, etc..........................   13

                                  ARTICLE VII

                   COVENANTS OF THE ISSUER AND THE DEPOSITOR
SECTION 7.01.   Information from the Issuer.............................   13
SECTION 7.02.   Access to Information...................................   14
SECTION 7.03.   Ownership and Security Interests; Further Assurances....   14
SECTION 7.04.   Covenants...............................................   14
SECTION 7.05.   Amendments..............................................   14
SECTION 7.06.   With Respect to the Exempt Status of the Purchased
                Note....................................................   14

                                  ARTICLE VIII

                              ADDITIONAL COVENANTS
SECTION 8.01.   Legal Conditions to Closing.............................   15
SECTION 8.02.   Expenses................................................   15
SECTION 8.03.   Mutual Obligations......................................   15
SECTION 8.04.   Restrictions on Transfer................................   16
SECTION 8.05.   Confidentiality.........................................   16
SECTION 8.06.   Information Provided by the Purchaser...................   16

                                   ARTICLE IX

                                INDEMNIFICATION
SECTION 9.01.   Indemnification of Purchaser............................   16
SECTION 9.02.   Procedure and Defense...................................   17

                                   ARTICLE X

                                 MISCELLANEOUS
SECTION 10.01.  Amendments..............................................   18
SECTION 10.02.  Notices.................................................   18
SECTION 10.03.  No Waiver; Remedies.....................................   18
SECTION 10.04.  Binding Effect; Assignability...........................   18
SECTION 10.05.  Provision of Documents and Information..................   19
</TABLE>

                                       ii
<PAGE>

<TABLE>
<CAPTION>
                                                                         Page
                                                                         ----
<S>                                                                      <C>
SECTION 10.06.  Governing Law; Jurisdiction............................   19
SECTION 10.07.  No Proceedings.........................................   19
SECTION 10.08.  Execution in Counterparts..............................   19
SECTION 10.09.  No Recourse -- Purchaser and Depositor.................   19
SECTION 10.10.  Survival...............................................   20
SECTION 10.12.  Conflicts..............................................   20
SECTION 10.13.  Limitation on Liability................................   20
</TABLE>

Schedule I -- Information for Notices

                                       iii
<PAGE>

                             NOTE PURCHASE AGREEMENT

            AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated and effective as
of April 16, 2004 (the "Note Purchase Agreement"), among OPTION ONE OWNER TRUST
2001-1A (the "Issuer"), OPTION ONE LOAN WAREHOUSE CORPORATION (the "Depositor"),
and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. ("Greenwich," and in its capacity
as Purchaser hereunder, the "Purchaser").

            The parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

            SECTION 1.01. Certain Defined Terms. Capitalized terms used herein
without definition shall have the meanings set forth in the Indenture and the
Sale and Servicing Agreement (as defined below). Additionally, the following
terms shall have the following meanings:

            "Closing" shall have the meaning set forth in Section 2.02.

            "Closing" shall have the meaning set forth in Section 2.02.

            "Commitment" means the commitment of the Purchaser to purchase
Additional Note Principal Balances pursuant to Section 2.01.

            "Confidential Information" means all marketing information,
financial information, terms sheets and other information concerning the
transactions contemplated thereby, prepared by the Purchaser and its Affiliates.

            "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

            "Governmental Actions" means any and all consents, approvals,
permits, orders, authorizations, waivers, exceptions, variances, exemptions or
licenses of, or registrations, declarations or filings with, any Governmental
Authority required under any Governmental Rules.

            "Governmental Authority" means the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and having jurisdiction over the applicable Person.

            "Governmental Rules" means any and all laws, statutes, codes, rules,
regulations, ordinances, orders, writs, decrees and injunctions, of any
Governmental Authority and any and all legally binding conditions, standards,
prohibitions, requirements and judgments of any Governmental Authority.

            "Indemnified Party" means the Purchaser and any of its officers,
directors, employees, agents, representatives, assignees and Affiliates and any
Person who controls the

<PAGE>

Purchaser or its Affiliates within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act.

            "Indenture" means the Indenture dated as of April 1, 2001, and as
amended and restated through and including November 25, 2003, between the Issuer
as Issuer and Wells Fargo Bank Minnesota, National Association as Indenture
Trustee, as the same may be further amended or supplemented from time to time.

            "Investment Company Act" shall have the meaning provided in Section
5.01(i).

            "Lien" means, with respect to any asset, (a) any mortgage, lien,
pledge, charge, security interest, hypothecation, option or encumbrance of any
kind in respect of such asset or (b) the interest of a vendor or lessor under
any conditional sale agreement, financing lease or other title retention
agreement relating to such asset.

            "Loan Originator" means Option One Mortgage Corporation, a
California corporation.

            "Maximum Note Principal Balance" means an amount equal to (i) on any
date through and including December 30, 2003 and on or after January 1, 2004,
$2,000,000,000 or (ii) on December 31, 2003, $1,500,000,000, in each case less
(i) any reductions pursuant to Section 2.06 of the Sale and Servicing Agreement,
less (ii) the aggregate outstanding principal balance of the Option One Owner
Trust 2001-IB Mortgage-Backed Note issued by the Option One Owner Trust 2001-IB
and less (iii) the aggregate amount outstanding from time to time under any
secured loan or repurchase facility entered into by Greenwich, or its
Affiliates, and Option One Mortgage Corporation, or its Subsidiaries.

            "Purchaser" means the Purchaser and its permitted successors and
assigns.

            "Purchased Note" means the Option One Owner Trust 2001-1A
Mortgage-Backed Note issued by the Issuer pursuant to the Indenture.

            "Residual Security" Any security sold to the Trust hereunder and
pledged to the Indenture Trustee, which security must be (i) a mortgage-backed
security issued by Option One Mortgage Acceptance Corp. and evidencing an
interest in a securitization trust backed by residential mortgage loans, which
mortgage loans are serviced by Option One Mortgage Corporation (in such
capacity, "Option One") (including, without limitation, securities designated as
class C certificates and class P certificates that meet the foregoing criteria)
or (ii) a net interest margin security issued by a trust sponsored by Option One
and backed by class C certificates and/or Class P certificates, which
certificates are in turn backed by residential mortgage loans serviced by Option
One.

            "Sale and Servicing Agreement" means the Sale and Servicing
Agreement, dated as of April 1, 2001, and as amended and restated through and
including April 16, 2004, among the Issuer, the Depositor, the Loan Originator,
the Servicer and Wells Fargo Bank Minnesota, National Association as the
Indenture Trustee, as the same may be further amended or supplemented from time
to time.

                                       2
<PAGE>

            "Secured Loan Facility" means the secured loan facility entered into
by Option One Mortgage Corporation and Greenwich, as evidence by the Master Loan
and Security Agreement, dated May 2, 2002, between Option One Mortgage
Corporation and Greenwich, as amended or restated from time to time, and the
promissory note of Option One Mortgage Corporation in favor of Greenwich entered
into in connection therewith.

            "Servicer" means Option One Mortgage Corporation or its permitted
successors and assigns.

            SECTION 1.02. Other Definitional Provisions.

            (a) All terms defined in this Note Purchase Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.

            (b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Section
1.01, and accounting terms partially defined in Section 1.01 to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of accounting
terms herein are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained herein shall control.

            (c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Note Purchase Agreement shall refer to this
Note Purchase Agreement as a whole and not to any particular provision of this
Note Purchase Agreement; and Section, subsection, Schedule and Exhibit
references contained in this Note Purchase Agreement are references to Sections,
subsections, and Exhibits in or to this Note Purchase Agreement unless otherwise
specified.

                                   ARTICLE II

                      COMMITMENT; CLOSING AND PURCHASES OF
                       ADDITIONAL NOTE PRINCIPAL BALANCES

            SECTION 2.01. Commitment; Collateral Value Increase Dates.

            (a) At any time during the Revolving Period at least two Business
Days prior to a proposed Transfer Date or Funding Date, to the extent that the
aggregate outstanding Note Principal Balance (after giving effect to the
proposed purchase) is less than the Maximum Note Principal Balance, and subject
to the terms and conditions hereof and in accordance with the other Basic
Documents, the Issuer may request that the Purchaser purchase Additional Note
Principal Balances (each such request, a "Purchase Request"). Each Purchase
Request shall identify (i) with respect to each Transfer Date, the proposed
Transfer Date and an estimate of the number of Loans or Residual Securities and
aggregate Principal Balance of such Loans and aggregate Principal Balance of
such Residual Securities to be purchased by the Issuer on such Transfer Date and
(ii) with respect to each Funding Date, the proposed Funding Date and the
aggregate Receivables Balance of the Receivables to be purchased by the Advance
Trust on such Funding Date. On the

                                       3
<PAGE>

identified Transfer Date or Funding Date, the Purchaser agrees to purchase the
Additional Note Principal Balances requested in the Purchase Request, subject to
the terms and conditions and in reliance upon the covenants, representations and
warranties set forth herein and in the other Basic Documents.

            (b) On any Collateral Value Increase Date during the Revolving
Period, to the extent that the Note Principal Balance (after giving effect to
the proposed increase in the Note Principal Balance) is less than the Maximum
Note Principal Balance, and subject to the terms and conditions hereof and in
accordance with the other Basic Documents, the Issuer may request that the
Purchaser purchase Additional Note Principal Balances equal to the related
increase in the Collateral Value of the related Mortgage Loans. The Purchaser
may in its sole discretion agree to purchase such Additional Note Principal
Balances.

            SECTION 2.02. Closing. The closing (the "Closing") of the execution
of the Basic Documents and Purchased Note shall take place at 10:00 a.m. at the
offices of Thacher Proffitt & Wood, 2 World Trade Center, New York, New York
10048 on April 18, 2001, or if the conditions to closing set forth in Article IV
of this Note Purchase Agreement shall not have been satisfied or waived by such
date, as soon as practicable after such conditions shall have been satisfied or
waived, or at such other time, date and place as the parties shall agree upon
(the date of the Closing being referred to herein as the "Closing").

                                  ARTICLE III

                        TRANSFER DATES AND FUNDING DATES

            SECTION 3.01. Transfer Dates.

            (a) Subject to the conditions and terms set forth herein and in
Section 2.06 of the Sale and Servicing Agreement with respect to each Transfer
Date, the Issuer may request, and the Purchaser agrees to purchase Additional
Note Principal Balances from the Issuer from time to time in accordance with,
and upon the satisfaction, as of the applicable Transfer Date, of each of the
following additional conditions:

                  (i) With respect to each Transfer Date, each condition set
forth in Section 2.06 of the Sale and Servicing Agreement shall have been
satisfied;

                  (ii) Each of the representations and warranties of the Issuer,
the Servicer, the Loan Originator and the Depositor made in the Basic Documents
shall be true and correct as of such date (except to the extent they expressly
relate to an earlier or later time);

                  (iii) The Issuer, the Servicer, the Loan Originator and the
Depositor shall be in compliance with all of their respective covenants
contained in the Basic Documents and the Purchased Note;

                  (iv) No Event of Default and no Default shall have occurred or
shall be occurring; and

                                       4
<PAGE>

                  (v) With respect to each Transfer Date, the Purchaser shall
have received evidence reasonably satisfactory to it of the completion of all
recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the assignments
required to be effected on such Transfer Date in accordance with the Sale and
Servicing Agreement and the Residual Securities Transfer Agreement, including,
without limitation, the assignment of the Loans and the Residual Securities and
the proceeds thereof required to be assigned pursuant to the related LPA
Assignment, RSTA Assignment, S&SA Assignment and the Indenture.

            (b) The Purchaser shall determine in its reasonable discretion
whether each of the above conditions have been met in accordance with the Sale
and Servicing Agreement and its determination shall be binding on the parties
hereto.

            (c) The price paid by the Purchaser on each Transfer Date for the
Additional Note Principal Balance purchased on such Transfer Date shall be equal
to the amount of such Additional Note Principal Balance and shall be remitted
not later than 4:00 p.m. New York City time on the Transfer Date by wire
transfer of immediately available funds to the Advance Account.

            (d) The Purchaser shall record on the schedule attached to the
Purchased Note, the date and amount of any Additional Note Principal Balance
purchased by it; provided, that failure to make such recordation on such
schedule or any error in such schedule shall not adversely affect the
Purchaser's rights with respect to its Note Principal Balance and its right to
receive interest payments in respect of the Note Principal Balance actually
held. Absent manifest error, the Note Principal Balance of the Purchased Note as
set forth in the Purchaser's records shall be binding upon the parties hereto,
notwithstanding any notation or record made or kept by any other party hereto.

            SECTION 3.02. Funding Dates.

            (a) Subject to the conditions and terms set forth herein and in
Section 2.06 of the Sale and Servicing Agreement with respect to each Funding
Date, the Issuer may request, and the Purchaser agrees to purchase Additional
Note Principal Balances from the Issuer from time to time in accordance with,
and upon the satisfaction, as of the applicable Funding Date, of each of the
following additional conditions:

                  (i) With respect to each Funding Date, each condition set
forth in Section 2.06 of the Sale and Servicing Agreement shall have been
satisfied;

                  (ii) Each of the representations and warranties of the Issuer,
the Servicer, the Loan Originator and the Depositor made in the Basic Documents
shall be true and correct as of such date (except to the extent they expressly
relate to an earlier or later time);

                  (iii) The Issuer, the Servicer, the Loan Originator and the
Depositor shall be in compliance with all of their respective covenants
contained in the Basic Documents and the Purchased Note;

                  (iv) No Event of Default and no Default shall have occurred or
shall be occurring; and

                                       5
<PAGE>

                  (v) With respect to each Funding Date, the Purchaser shall
have received evidence reasonably satisfactory to it of the completion of all
recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the Indenture
Trustee's security interest in the Advance Note and the proceeds thereof.

            (b) The Purchaser shall determine in its reasonable discretion
whether each of the above conditions have been met in accordance with the Sale
and Servicing Agreement and its determination shall be binding on the parties
hereto.

            (c) The price paid by the Purchaser on each Funding Date for the
Additional Note Principal Balance purchased on such Funding Date shall be equal
to the amount of such Additional Note Principal Balance and shall be remitted
not later than 4:00 p.m. New York City time on the Funding Date by wire transfer
of immediately available funds to the Funding Account.

            (d) The Purchaser shall record on the schedule attached to the
Purchased Note, the date and amount of any Additional Note Principal Balance
purchased by it; provided, that failure to make such recordation on such
schedule or any error in such schedule shall not adversely affect the
Purchaser's rights with respect to its Note Principal Balance and its right to
receive interest payments in respect of the Note Principal Balance actually
held. Absent manifest error, the Note Principal Balance of the Purchased Note as
set forth in the Purchaser's records shall be binding upon the parties hereto,
notwithstanding any notation or record made or kept by any other party hereto.

                                   ARTICLE IV

                             CONDITIONS PRECEDENT TO
                           EFFECTIVENESS OF COMMITMENT

            SECTION 4.01. Closing Subject to Conditions Precedent. The
effectiveness of the Commitment hereunder is subject to the satisfaction at the
time of the Closing of the following conditions (any or all of which may be
waived by the Purchaser in its sole discretion):

            (a) Performance by the Issuer, the Depositor, the Servicer and the
Loan Originator. All the terms, covenants, agreements and conditions of the
Basic Documents to be complied with and performed by the Issuer, the Depositor,
the Servicer and the Loan Originator on or before the Closing Date shall have
been complied with and performed in all material respects.

            (b) Representations and Warranties. Each of the representations and
warranties of the Issuer, the Depositor, the Servicer and the Loan Originator
made in the Basic Documents shall be true and correct in all material respects
as of the Closing Date (except to the extent they expressly relate to an earlier
or later time).

            (c) Officer's Certificate. The Purchaser shall have received in form
and substance reasonably satisfactory to the Purchaser an Officer's Certificate
from the Loan Originator, the Depositor and the Servicer and a certificate of an
Authorized Officer of the Issuer, dated the Closing Date, certifying to the
satisfaction of the conditions set forth in the preceding paragraphs (a) and (b)

                                       6
<PAGE>

            (d) Opinions of Counsel to the Issuer, the Loan Originator, the
Servicer and the Depositor. Counsel to the Issuer, the Loan Originator, the
Servicer and the Depositor shall have delivered to the Purchaser favorable
opinions, dated as of the Closing Date and satisfactory in form and substance to
the Purchaser and its counsel. In addition to the foregoing, the Loan Originator
shall have caused its counsel to deliver to the Purchaser a favorable opinion to
the effect that the Issuer will not be treated as an association (or publicly
traded partnership) taxable as a corporation or as a taxable mortgage pool, for
federal income tax purposes.

            (e) Opinions of Counsel to the Indenture Trustee. Counsel to the
Indenture Trustee shall have delivered to the Purchaser a favorable opinion,
dated as of the Closing Date and reasonably satisfactory in form and substance
to the Purchaser and its counsel.

            (f) Opinions of Counsel to the Owner Trustee. Delaware counsel to
the Owner Trustee of the Issuer and the Depositor shall have delivered to the
Purchaser favorable opinions regarding the formation, existence and standing of
the Issuer and the Depositor and of the Issuer's and the Depositor's execution,
authorization and delivery of each of the Basic Documents to which it is a party
and such other matters as the Purchaser may reasonably request, dated as of the
Closing Date and reasonably satisfactory in form and substance to the Purchaser
and its counsel.

            (g) Filings and Recordations. The Purchaser shall have received
evidence reasonably satisfactory to it of (i) the completion of all recordings,
registrations, and filings as may be necessary or, in the reasonable opinion of
the Purchaser, desirable to perfect or evidence the assignment by the Loan
Originator to the Depositor of the Loan Originator's ownership interest in the
Trust Estate including, without limitation, the Loans conveyed pursuant to the
Loan Purchase Agreement and the proceeds thereof and the Residual Securities
conveyed pursuant to the Residual Securities Transfer Agreement and the proceeds
thereof, (ii) the completion of all recordings, registrations and filings as may
be necessary or, in the reasonable opinion of the Purchaser, desirable to
perfect or evidence the assignment by the Depositor to the Issuer of the
Depositor's ownership interest in the Trust Estate including, without
limitation, the Loans and Residual Securities and the proceeds thereof and (iii)
the completion of all recordings, registrations, and filings as may be necessary
or, in the reasonable opinion of the Purchaser, desirable to perfect or evidence
the grant of a first priority perfected security interest in the Issuer's
ownership interest in the Trust Estate including, without limitation, the Loans
and the Residual Securities, in favor of the Indenture Trustee, subject to no
Liens prior to the Lien of the Indenture.

            (h) Documents. The Purchaser shall have received a duly executed
counterpart of each of the Basic Documents, in form acceptable to the Purchaser,
the Purchased Note and each and every document or certification delivered by any
party in connection with any of the Basic Documents or the Purchased Note, and
each such document shall be in full force and effect.

            (i) Actions or Proceedings. No action, suit, proceeding or
investigation by or before any Governmental Authority shall have been instituted
to restrain or prohibit the consummation of, or to invalidate, any of the
transactions contemplated by the Basic Documents, the Purchased Note and the
documents related thereto in any material respect.

                                       7
<PAGE>

            (j) Approvals and Consents. All Governmental Actions of all
Governmental Authorities required with respect to the transactions contemplated
by the Basic Documents, the Purchased Note and the documents related thereto
shall have been obtained or made.

            (k) Accounts. The Purchaser shall have received evidence reasonably
satisfactory to it that each Trust Account has each been established in
accordance with the terms of the Sale and Servicing Agreement.

            (l) Fees and Expenses. The fees and expenses payable by the Issuer
and the Depositor pursuant to Section 8.02(b) shall have been paid.

            (m) Other Documents. The Issuer, the Loan Originator, the Depositor
and the Servicer shall have furnished to the Purchaser such other opinions,
information, certificates and documents as the Purchaser may reasonably request.

            (n) Proceedings in Contemplation of Sale of Purchased Note. All
actions and proceedings undertaken by the Issuer, the Loan Originator, the
Depositor and the Servicer in connection with the issuance and sale of the
Purchased Note as herein contemplated shall be satisfactory in all respects to
the Purchaser and its counsel.

            (o) Financial Covenants. The Loan Originator and the Servicer shall
be in compliance with the financial covenants set forth in Section 7.02 of the
Sale and Servicing Agreement.

            (p) Trust Accounts Control Agreements. The Purchaser shall have
received control agreements relating to the Trust Accounts satisfactory to the
Purchaser.

            (q) Wet Funding Agreement. The Issuer, the Depositor, the Loan
Originator and such other appropriate parties shall have entered into an
agreement concerning the terms, conditions and procedures applicable to the sale
of Wet Funded Loans to the Issuer and the pledge of such Loans to the Indenture
Trustee satisfactory to the Purchaser.

            If any condition specified in this Section 4.01 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Purchaser by notice to the Loan Originator at any time at or prior to the
Closing Date, and the Purchaser shall incur no liability as a result of such
termination.

                                    ARTICLE V

                      REPRESENTATIONS AND WARRANTIES OF THE
                            ISSUER AND THE DEPOSITOR

            The Issuer and the Depositor hereby jointly and severally make the
following representations and warranties to the Purchaser, as of the Closing
Date, and as of each Transfer Date and each Funding Date and the Purchaser shall
be deemed to have relied on such representations and warranties in making (or
committing to make) purchases of Additional Note Principal Balances on each
Transfer Date and each Funding Date:

                                       8
<PAGE>

            SECTION 5.01. Issuer.

            (a) The Issuer has been duly organized and is validly existing and
in good standing as a statutory trust under the laws of the State of Delaware,
with requisite trust power and authority to own its properties and to transact
the business in which it is now engaged, and is duly qualified to do business
and is in good standing (or is exempt from such requirements) in each State of
the United States where the nature of its business requires it to be so
qualified and the failure to be so qualified and in good standing would have a
material adverse effect on the Issuer or any adverse effect on the interests of
the Purchaser.

            (b) The issuance, sale, assignment and conveyance of the Purchased
Note and the Additional Note Principal Balances, the performance of the Issuer's
obligations under each Basic Document to which it is a party and the
consummation of the transactions therein contemplated will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than any Lien
created by the Basic Documents), charge or encumbrance upon any of the property
or assets of the Issuer or any of its Affiliates pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it or any of its Affiliates is bound or to which any of its
property or assets is subject, nor will such action result in any violation of
the provisions of its organizational documents or any Governmental Rule
applicable to the Issuer, in each case which could be expected to have a
material adverse effect on the transactions contemplated therein.

            (c) No Governmental Action which has not been obtained is required
by or with respect to the Issuer in connection with the execution and delivery
to the Purchaser of the Purchased Note. No Governmental Action which has not
been obtained is required by or with respect to the Issuer in connection with
the execution and delivery of any of the Basic Documents to which the Issuer is
a party or the consummation by the Issuer of the transactions contemplated
thereby except for any requirements under state securities or "blue sky" laws in
connection with any transfer of the Purchased Note.

            (d) The Issuer possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now operated by
it, and has not received any notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect its condition, financial or
otherwise, or its earnings, business affairs or business prospects.

            (e) Each of the Basic Documents to which the Issuer is a party has
been duly authorized, executed and delivered by the Issuer and is a valid and
legally binding obligation of the Issuer, enforceable against the Issuer in
accordance with its terms, subject to enforcement of bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.

            (f) The execution, delivery and performance by the Issuer of each of
its obligations under each of the Basic Documents to which it is a party will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or

                                       9
<PAGE>

instrument to which the Issuer is a party or by which the Issuer is bound or to
which any of its properties are subject or of any statute, order or regulation
applicable to the Issuer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Issuer or any of its properties,
in each case which could be expected to have a material adverse effect on any of
the transactions contemplated therein.

            (g) The Issuer is not in violation of its organizational documents
or in default under any agreement, indenture or instrument the effect of which
violation or default would be material to the Issuer or the transactions
contemplated by the Basic Documents. The Issuer is not a party to, bound by or
in breach or violation of any indenture or other agreement or instrument, or
subject to or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Issuer that materially and adversely affects, or may in the future
materially and adversely affect (i) the ability of the Issuer to perform its
obligations under any of the Basic Documents to which it is a party or (ii) the
business, operations, financial condition, properties, assets or prospects of
the Issuer.

            (h) There are no actions or proceedings against, or investigations
of, the Issuer pending, or, to the knowledge of the Issuer threatened, before
any Governmental Authority, court, arbitrator, administrative agency or other
tribunal (i) asserting the invalidity of any of the Basic Documents, or (ii)
seeking to prevent the issuance of the Purchased Note or the consummation of any
of the transactions contemplated by the Basic Documents or the Purchased Note,
or (iii) that, if adversely determined, could materially and adversely affect
the business, operations, financial condition, properties, assets or prospects
of the Issuer or the validity or enforceability of, or the performance by the
Issuer of its respective obligations under, any of the Basic Documents to which
it is a party or (iv) seeking to affect adversely the income tax attributes of
the Purchased Note.

            (i) The Issuer is not, and neither the issuance and sale of the
Purchased Note to the Purchaser nor the activities of the Issuer pursuant to the
Basic Documents, shall render the Issuer an "investment company" or under the
"control" of an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").

            (j) It is not necessary to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.

            (k) The Issuer is solvent and has adequate capital for its business
and undertakings.

            (l) The chief executive offices of the Issuer are located at Option
One Owner Trust 2001-1A, c/o Wilmington Trust Company, as Owner Trustee, One
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, or,
with the consent of the Purchaser, such other address as shall be designated by
the Issuer in a written notice to the other parties hereto.

            (m) There are no contracts, agreements or understandings between the
Issuer and any Person granting such Person the right to require the filing at
any time of a registration statement under the Act with respect to the Purchased
Note.

                                       10
<PAGE>

            SECTION 5.02. Securities Act. Assuming the accuracy of the
representations and warranties of and compliance with the covenants of the
Purchaser, contained herein, the sale of the Purchased Note and the sale of
Additional Note Principal Balances pursuant to this Agreement are each exempt
from the registration and prospectus delivery requirements of the Act. In the
case of the offer or sale of the Purchased Note, no form of general solicitation
or general advertising was used by the Issuer, any Affiliates of the Issuer or
any person acting on its or their behalf, including, but not limited to,
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Neither the Issuer, any Affiliates of the
Issuer nor any Person acting on its or their behalf has offered or sold, nor
will the Issuer or any Person acting on its behalf offer or sell directly or
indirectly, the Purchased Note or any other security in any manner that,
assuming the accuracy of the representations and warranties and the performance
of the covenants given by the Purchaser and compliance with the applicable
provisions of the Indenture with respect to each transfer of the Purchased Note,
would render the issuance and sale of the Purchased Note as contemplated hereby
a violation of Section 5 of the Securities Act or the registration or
qualification requirements of any state securities laws, nor has any such Person
authorized, nor will it authorize, any Person to act in such manner.

            SECTION 5.03. No Fee. Neither the Issuer, nor the Depositor, nor any
of their Affiliates has paid or agreed to pay to any Person any compensation for
soliciting another to purchase the Purchased Note.

            SECTION 5.04. Information. The information provided pursuant to
Section 7.01 (a) hereof will, at the date thereof, be true and correct in all
material respects.

            SECTION 5.05. The Purchased Note. The Purchased Note has been duly
and validly authorized, and, when executed and authenticated in accordance with
the terms of the Indenture, and delivered to and paid for in accordance with
this Note Purchase Agreement, will be duly and validly issued and outstanding
and will be entitled to the benefits of the Indenture.

            SECTION 5.06. Use of Proceeds. No proceeds of a purchase hereunder
will be used (i) for a purpose that violates or would be inconsistent with
Regulations T, U or X promulgated by the Board of Governors of the Federal
Reserve System from time to time or (ii) to acquire any security in any
transaction in violation of Section 13 or 14 of the Exchange Act.

            SECTION 5.07. The Depositor. The Depositor hereby makes to the
Purchaser each of the representations, warranties and covenants set forth in
Section 3.01 of the Sale and Servicing Agreement as of the Closing Date and as
of each Transfer Date (except to the extent that any such representation,
warranty or covenant is expressly made as of another date).

            SECTION 5.08. Taxes, etc. Any taxes, fees and other charges of
Governmental Authorities applicable to the Issuer and the Depositor, except for
franchise or income taxes, in connection with the execution, delivery and
performance by the Issuer and the Depositor of each Basic Document to which they
are parties, the issuance of the Purchased Note or otherwise applicable to the
Issuer or the Depositor in connection with the Trust Estate have been paid or
will

                                       11
<PAGE>

be paid by the Issuer or the Depositor, as applicable, at or prior to the
Closing Date or Transfer Date, to the extent then due.

            SECTION 5.09. Financial Condition. On the date hereof and on each
Transfer Date and each Funding Date, neither the Issuer nor the Depositor is or
will be insolvent or the subject of any voluntary or involuntary bankruptcy
proceeding.

                                   ARTICLE VI

                       REPRESENTATIONS AND WARRANTIES WITH
                            RESPECT TO THE PURCHASER

            The Purchaser hereby makes the following representations and
warranties, as to itself, to the Issuer and the Depositor on which the same are
relying in entering into this Note Purchase Agreement.

            SECTION 6.01. Organization. The Purchaser has been duly organized
and is validly existing and in good standing under the laws of the jurisdiction
of its organization with power and authority to own its properties and to
transact the business in which it is now engaged.

            SECTION 6.02. Authority, etc. The Purchaser has all requisite power
and authority to enter into and perform its obligations under this Note Purchase
Agreement and to consummate the transactions herein contemplated. The execution
and delivery by the Purchaser of this Note Purchase Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized by all necessary organizational action on the part
of the Purchaser. This Note Purchase Agreement has been duly and validly
executed and delivered by the Purchaser and constitutes a legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, subject as to enforcement to bankruptcy,
reorganization, insolvency, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity. Neither the execution and delivery by the Purchaser of
this Note Purchase Agreement nor the consummation by the Purchaser of any of the
transactions contemplated hereby, nor the fulfillment by the Purchaser of the
terms hereof, will conflict with, or violate, result in a breach of or
constitute a default under any term or provision of the Purchaser's
organizational documents or any Governmental Rule applicable to the Purchaser.

            SECTION 6.03. Securities Act. The Purchaser will acquire the
Purchased Note pursuant to this Note Purchase Agreement without a view to any
public distribution thereof, and will not offer to sell or otherwise dispose of
the Purchased Note (or any interest therein) in violation of any of the
registration requirements of the Act or any applicable state or other securities
laws, or by means of any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) and will comply
with the requirements of the Indenture. The Purchaser acknowledges that it has
no right to require the Issuer or any other Person to register the Purchased
Note under the Securities Act or any other securities law.

                                       12
<PAGE>

            SECTION 6.04. Conflicts With Law. The execution, delivery and
performance by the Purchaser of its obligations under this Note Purchase
Agreement will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any agreement or instrument to
which the Purchaser is a party or by which the Purchaser is bound or of any
statute, order or regulation applicable to the Purchaser of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Purchaser, in each case which could be expected to have a material
adverse effect on the transactions contemplated therein.

            SECTION 6.05. Conflicts With Agreements, etc. The Purchaser is not
in violation of its organizational documents or in default under any agreement,
indenture or instrument the effect of which violation or default would be
materially adverse to the Purchaser in the performance of its obligations or
duties under any of the Basic Documents to which it is a party. The Purchaser is
not a party to, bound by or in breach or violation of any indenture or other
agreement or instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or governmental
body having jurisdiction over the Purchaser that materially and adversely
affects, or which could be expected in the future to materially and adversely
affect the ability of the Purchaser to perform its obligations under this Note
Purchase Agreement.

                                   ARTICLE VII

                    COVENANTS OF THE ISSUER AND THE DEPOSITOR

            SECTION 7.01. Information from the Issuer. So long as the Purchased
Note remains outstanding, the Issuer and the Depositor shall each furnish to the
Purchaser:

            (a) such information (including financial information), documents,
records or reports with respect to the Trust Estate, the Loans, the Residual
Securities, the Advance Note, the Issuer, the Loan Originator, the Servicer or
the Depositor as the Purchaser may from time to time reasonably request;

            (b) as soon as possible and in any event within five (5) Business
Days after the occurrence thereof, notice of each Event of Default under the
Sale and Servicing Agreement or the Indenture, and each Default; and

            (c) promptly and in any event within 30 days after the occurrence
thereof, written notice of a change in address of the chief executive office of
the Issuer, the Loan Originator or the Depositor.

            SECTION 7.02. Access to Information. So long as the Purchased Note
remains outstanding, each of the Issuer and the Depositor shall, at any time and
from time to time during regular business hours, or at such other reasonable
times upon reasonable notice to the Issuer or the Depositor, as applicable,
permit the Purchaser, or their agents or representatives to:

            (a) examine all books, records and documents (including computer
tapes and disks) in the possession or under the control of the Issuer or the
Depositor relating to the Loans, the Residual Securities or the Basic Documents
as may be requested, and

                                       13
<PAGE>

            (b) visit the offices and property of the Issuer and the Depositor
for the purpose of examining such materials described in clause (a) above.

            Except as provided in Section 10.05, information obtained by the
Purchaser pursuant to this Section 7.02 and Section 7.01 herein shall be held in
confidence in accordance with and to the extent provided in Sections 11.15 and
11.17 of the Sale and Servicing Agreement.

            SECTION 7.03. Ownership and Security Interests; Further Assurances.
The Depositor will take all action necessary to maintain the Issuer's ownership
interest in the Loans, the Residual Securities and the other items sold pursuant
to Article II of the Sale and Servicing Agreement. The Issuer will take all
action necessary to maintain the Indenture Trustee's security interest in the
Loans, the Residual Securities and the other items pledged to the Indenture
Trustee pursuant to the Indenture.

            The Issuer and the Depositor agree to take any and all acts and to
execute any and all further instruments reasonably necessary or requested by the
Purchaser to more fully effect the purposes of this Note Purchase Agreement.

            SECTION 7.04. Covenants. The Issuer and the Depositor shall each
duly observe and perform each of their respective covenants set forth in each of
the Basic Documents to which they are parties.

            SECTION 7.05. Amendments. Neither the Issuer nor the Depositor shall
make, or permit any Person to make, any amendment, modification or change to, or
provide any waiver under any Basic Document to which the Issuer or the
Depositor, as applicable, is a party without the prior written consent of the
Purchaser.

            SECTION 7.06. With Respect to the Exempt Status of the Purchased
Note.

            (a) Neither the Issuer nor the Depositor, nor any of their
respective Affiliates, nor any Person acting on their behalf will, directly or
indirectly, make offers or sales of any security, or solicit offers to buy any
security, under circumstances that would require the registration of the
Purchased Note under the Securities Act.

            (b) Neither the Issuer nor the Depositor, nor any of their
Affiliates, nor any Person acting on their behalf will engage in any form of
general solicitation or general advertising (within the meaning of Regulation D
promulgated under the Securities Act) in connection with any offer or sale of
the Purchased Note.

            (c) On or prior to any Transfer Date or Funding Date, the Issuer and
the Depositor will furnish or cause to be furnished to the Purchaser and any
subsequent purchaser therefrom of Additional Note Principal Balance, if the
Purchaser or such subsequent purchaser so requests, a letter from each Person
furnishing a certificate or opinion on the Closing Date as described in Section
4.01 hereof or on or before any such Transfer Date or Funding Date in which such
Person shall state that such subsequent purchaser may rely upon such original
certificate or opinion as though delivered and addressed to such subsequent
purchaser and made on and as of the

                                       14
<PAGE>

Closing Date or such Transfer Date or Funding Date, as the case may be, except
for such exceptions set forth in such letter as are attributable to events
occurring after the Closing Date or such Transfer Date or Funding Date.

                                  ARTICLE VIII

                              ADDITIONAL COVENANTS

            SECTION 8.01. Legal Conditions to Closing. The parties hereto will
take all reasonable action necessary to obtain (and will cooperate with one
another in obtaining) any consent, authorization, permit, license, franchise,
order or approval of, or any exemption by, any Governmental Authority or any
other Person, required to be obtained or made by it in connection with any of
the transactions contemplated by this Note Purchase Agreement.

            SECTION 8.02. Expenses.

            (a) The Issuer and the Depositor jointly and severally covenant
that, whether or not the Closing takes place, except as otherwise expressly
provided herein, all reasonable costs and expenses incurred in connection with
this Note Purchase Agreement and the transactions contemplated hereby shall be
paid by the Issuer or the Depositor.

            (b) The Issuer and the Depositor jointly and severally covenant to
pay as and when billed by the Purchaser all of the reasonable out-of-pocket
costs and expenses incurred in connection with the consummation and
administration of the transactions contemplated hereby and in the other Basic
Documents including, without limitation, (i) all reasonable fees, disbursements
and expenses of counsel to the Purchaser, (ii) all reasonable fees and expenses
of the Indenture Trustee and the Owner Trustee and their counsel and (iii) all
reasonable fees and expenses of the Custodian and its counsel.

            SECTION 8.03. Mutual Obligations. On and after the Closing, each
party hereto will do, execute and perform all such other acts, deeds and
documents as the other party may from time to time reasonably require in order
to carry out the intent of this Note Purchase Agreement.

            SECTION 8.04. Restrictions on Transfer. The Purchaser agrees that it
will comply with the restrictions on transfer of the Purchased Note set forth in
the Indenture and resell the Purchased Note only in compliance with such
restrictions.

            SECTION 8.05. Confidentiality. Each of the Purchaser, the Issuer and
the Depositor shall hold in confidence all Confidential Information and shall
not, at any time hereafter, use, disclose or divulge any such information,
knowledge or data to any Person except:

            (a)   Information which at the time of disclosure is a part of the
                  public knowledge or literature and readily accessible;

            (b)   Information as required to be disclosed by a Governmental
                  Authority;

                                       15
<PAGE>

            (c)   Disclosure to a Person that has entered into a confidentiality
                  agreement, acceptable to the Purchaser, the Issuer and the
                  Depositor; or

            (d)   Information that is deemed by the Purchaser reasonably
                  necessary to disclose in connection with its exercise of any
                  rights or remedies under the Basic Documents.

            SECTION 8.06. Information Provided by the Purchaser. The Purchaser
hereby covenants to determine One-Month LIBOR in accordance with the definition
thereof in the Basic Documents and shall give notice to the Indenture Trustee,
the Issuer and the Depositor of the Interest Payment Amount on each
Determination Date. The Purchaser shall cause the Market Value Agent to give
notice to the Indenture Trustee, the Issuer and the Depositor of any Hedge
Funding Requirement on or before the Determination Date related to any Payment
Date. In addition, on each Determination Date, the Purchaser hereby covenants to
give notice to the Indenture Trustee, the Issuer and the Depositor of (i) the
Issuer/Depositor Indemnities (as defined in the Trust Agreement), (ii) Due
Diligence Fees and (iii) the Collateral Value for each Loan and each Residual
Security for the related Payment Date.

                                   ARTICLE IX

                                 INDEMNIFICATION

            SECTION 9.01. Indemnification of Purchaser. Each of the Issuer and
the Depositor hereby agree to, jointly and severally, indemnify and hold
harmless each Indemnified Party against any and all losses, claims, damages,
liabilities, expenses or judgments (including accounting fees and reasonable
legal fees and other expenses incurred in connection with this Note Purchase
Agreement or any other Basic Document and any action, suit or proceeding or any
claim asserted) (collectively, "Losses"), as incurred (payable promptly upon
written request), for or on account of or arising from or in connection with any
information prepared by and furnished or to be furnished by any of the Issuer,
the Loan Originator, the Depositor, the Advance Trust, the Advance Depositor or
the Receivables Seller pursuant to or in connection with the transactions
contemplated hereby including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the business, operations, financial condition of
the Issuer, the Loan Originator, the Depositor, the Advance Trust, the Advance
Depositor or the Receivables Seller or with respect to the Loans, the Residual
Securities or the Advance Note, to the extent such information contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained therein in the light of the circumstances under
which such statements were made not misleading, except with respect to any such
information used by such Indemnified Party in violation of the Basic Documents
which results in such Losses. The indemnities contained in this Section 9.01
will be in addition to any liability which the Issuer or the Depositor may
otherwise have pursuant to this Note Purchase Agreement and any other Basic
Document.

            SECTION 9.02. Procedure and Defense. In case any action or
proceeding (including any governmental or regulatory investigation or
proceeding) shall be instituted involving any Indemnified Party in respect of
which indemnity may be sought pursuant to Section 9.01, such Indemnified Party
shall promptly notify the Issuer and the Depositor in writing and, upon request

                                       16
<PAGE>

of the Indemnified Party, the Issuer and the Depositor shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
indemnifying party may designate and shall pay the reasonable fees and
disbursements of such counsel related to such proceeding; provided that failure
to give such notice or deliver such documents shall not affect the rights to
indemnity hereunder unless such failure materially prejudices the rights of the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Issuer and/or the
Depositor, but the reasonable fees and expenses of such counsel will be at the
expense of such Indemnified Party, unless (i) the employment of counsel by the
Indemnified Party at its expense has been reasonably authorized in writing by
the Depositor or the Issuer, (ii) the Depositor or the Issuer has not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include the Depositor or the Issuer and one or more Indemnified Parties, and the
Indemnified Parties shall have been advised by counsel that there may be one or
more legal defenses available to them which are different from or additional to
those available to the Depositor or the Issuer. Reasonable expenses of counsel
to any Indemnified Party shall be reimbursed by the Issuer and the Depositor as
they are incurred. The Issuer and the Depositor shall not be liable for any
settlement of any proceeding affected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. Neither the
Issuer nor the Depositor will, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such proceeding.

                                    ARTICLE X

                                  MISCELLANEOUS

            SECTION 10.01. Amendments. No amendment or waiver of any provision
of this Note Purchase Agreement shall in any event be effective unless the same
shall be in writing and signed by all of the parties hereto, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

            SECTION 10.02. Notices. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including telecopies) and mailed, telecopied (with a copy delivered by
overnight courier) or delivered, as to each party hereto, at its address as set
forth in Schedule I hereto or at such other address as shall be designated by
such party in a written notice to the other parties hereto. All such notices and
communications shall be deemed effective upon receipt thereof, and in the case
of telecopies, when receipt is confirmed by telephone.

            SECTION 10.03. No Waiver; Remedies. No failure on the part of any
party hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise

                                       17
<PAGE>

thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.

            SECTION 10.04. Binding Effect; Assignability.

            (a) This Note Purchase Agreement shall be binding upon and inure to
the benefit of the Issuer, the Depositor and the Purchaser and their respective
permitted successors and assigns (including any subsequent holders of the
Purchased Note); provided, however, neither the Issuer nor the Depositor shall
have any right to assign their respective rights hereunder or interest herein
(by operation of law or otherwise) without the prior written consent of the
Purchaser.

            (b) The Purchaser may, in the ordinary course of its business and in
accordance with the Basic Documents and applicable law, including applicable
securities laws, at any time sell to one or more Persons (each, a
"Participant"), participating interests in all or a portion of its rights and
obligations under this Note Purchase Agreement. Notwithstanding any such sale by
the Purchaser of participating interests to a Participant, the Purchaser's
rights and obligations under this Note Purchase Agreement shall remain
unchanged, the Purchaser shall remain solely responsible for the performance
thereof, and the Issuer and the Depositor shall continue to deal solely and
directly with the Purchaser and shall have no obligations to deal with any
Participant in connection with the Purchaser's rights and obligations under this
Note Purchase Agreement.

            (c) This Note Purchase Agreement shall create and constitute the
continuing obligation of the parties hereto in accordance with its terms, and
shall remain in full force and effect until such time as all amounts payable
with respect to the Purchased Note shall have been paid in full.

            SECTION 10.05. Provision of Documents and Information. Each of the
Issuer and the Depositor acknowledges and agrees that the Purchaser is permitted
to provide to any subsequent Purchaser, permitted assignees and Participants,
opinions, certificates, documents and other information relating to the Issuer,
the Depositor, the Loans and the Residual Securities delivered to the Purchaser
pursuant to this Note Purchase Agreement provided that with respect to
Confidential Information, such subsequent Purchaser, permitted assignees and
Participants agree to be bound by Section 8.05 hereof.

            SECTION 10.06. GOVERNING LAW; JURISDICTION. THIS NOTE PURCHASE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. EACH
OF THE PARTIES TO THIS NOTE PURCHASE AGREEMENT HEREBY AGREES TO THE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
ANY APPELLATE COURT HAVING JURISDICTION TO REVIEW THE JUDGMENTS THEREOF. EACH OF
THE PARTIES HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

                                       18
<PAGE>

            SECTION 10.07. No Proceedings. Until the date that is one year and
one day after the last day on which any amount is outstanding under this Note
Purchase Agreement, the Depositor and the Purchaser hereby covenant and agree
that they will not institute against the Issuer or the Depositor, or join in any
institution against the Issuer or the Depositor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law.

            SECTION 10.08. Execution in Counterparts. This Note Purchase
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement.

            SECTION 10.09. No Recourse -- Purchaser and Depositor.

            (a) The obligations of the Purchaser under this Note Purchase
Agreement, or any other agreement, instrument, document or certificate executed
and delivered by or issued by the Purchaser or any officer thereof are solely
the partnership or corporate obligations of the Purchaser, as the case may be.
No recourse shall be had for payment of any fee or other obligation or claim
arising out of or relating to this Note Purchase Agreement or any other
agreement, instrument, document or certificate executed and delivered or issued
by the Purchaser or any officer thereof in connection therewith, against any
stockholder, limited partner, employee, officer, director or incorporator of the
Purchaser.

            (b) The obligations of the Depositor under this Note Purchase
Agreement, or any other agreement, instrument, document or certificate executed
and delivered by or issued by the Depositor or any officer thereof are solely
the partnership or corporate obligations of the Depositor, as the case may be.
No recourse shall be had for payment of any fee or other obligation or claim
arising out of or relating to this Note Purchase Agreement or any other
agreement, instrument, document or certificate executed and delivered or issued
by the Purchaser or any officer thereof in connection therewith, against any
stockholder, limited partner, employee, officer, director or incorporator of the
Depositor.

            (c) The Purchaser, by accepting the Purchased Note, acknowledges
that such Purchased Note represents an obligation of the Issuer and does not
represent an interest in or an obligation of the Loan Originator, the Servicer,
the Depositor, the Administrator, the Owner Trustee, the Indenture Trustee or
any Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Agreement,
the Purchased Note or the Basic Documents.

            SECTION 10.10. Survival. All representations, warranties, covenants,
guaranties and indemnifications contained in this Note Purchase Agreement and in
any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the sale, transfer or repayment of the
Purchased Note.

                                       19
<PAGE>

            SECTION 10.11. Tax Characterization. Each party to this Note
Purchase Agreement (a) acknowledges and agrees that it is the intent of the
parties to this Note Purchase Agreement that for all purposes, including
federal, state and local income, single business and franchise tax purposes, the
Purchased Note will be treated as evidence of indebtedness secured by the Loans
and the Residual Securities and proceeds thereof and the trust created under the
Indenture will not be characterized as an association (or publicly traded
partnership) taxable as a corporation, (b) agrees to treat the Purchased Note
for federal, state and local income and franchise tax purposes as indebtedness
and (c) agrees that the provisions of all Basic Documents shall be construed to
further these intentions of the parties.

            SECTION 10.12. Conflicts. Notwithstanding anything contained herein
to the contrary, in the event of the conflict between the terms of the Sale and
Servicing Agreement and this Note Purchase Agreement, the terms of the Sale and
Servicing Agreement shall control.

            SECTION 10.13. Limitation on Liability. It is expressly understood
and agreed by the parties hereto that (a) this Note Purchase Agreement is
executed and delivered by Wilmington Trust Company, not individually or
personally, but solely as Owner Trustee of Option One Owner Trust 2001-1 A, in
the exercise of the powers and authority conferred and vested in it, (b) each of
the representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Note Purchase Agreement or any other
related documents.

                                       20
<PAGE>

            IN WITNESS WHEREOF, the parties have caused this Amended and
Restated Note Purchase Agreement to be executed by their respective officers
hereunto duly authorized, as of the date first above written.

                               OPTION ONE OWNER TRUST 2001-1A

                               By: Wilmington Trust Company not in its
                                   individual capacity but solely as
                                   owner trustee

                               By: /s/ Rachel L. Simpson
                                   ----------------------------------------
                               NAME: Rachel L. Simpson
                               Title: Financial Services Officer

                               OPTION ONE LOAN WAREHOUSE CORPORATION

                               By:  /s/ C.R. Fulton
                                   ----------------------------------------
                               Name:  Charles R. Fulton
                               Title:

                               GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.

                               By: /s/ Anthony Palmisano
                                   ----------------------------------------
                               Name: Anthony Palmisano
                               Title: Vice President

<PAGE>

                                   SCHEDULE I
                             INFORMATION FOR NOTICES

1.    if to the Issuer:

            Option One Owner Trust 2001-1A
            c/o Wilmington Trust Company
            as Owner Trustee
            One Rodney Square North
            1100 North Market Street
            Wilmington, Delaware 19890
            Attention: Corporate Trust Administration
            Telecopy: (302) 636-4144
            Telephone: (302)651-1000

      with a copy to:

            Option One Mortgage Corporation
            3 Ada Road
            Irvine, California 92618
            Attention: William O'Neill
            Telecopy number: (949) 790-7540
            Telephone number: (949) 790-7504

2.    if to the Depositor:

            Option One Loan Warehouse Corporation
            3 Ada Road
            Irvine, California 92618
            Attention: William O'Neill
            Telecopy number: (949) 790-7540
            Telephone number: (949) 790-7504

3.    if to the Purchaser:

            Greenwich Capital Financial Products, Inc.
            600 Steamboat Road
            Greenwich, Connecticut 06830
            Attention: Anthony Palmisano
            Telecopy: (203)618-2135
            Telephone: (203)618-2341

      with a copy to:

                                       I-1
<PAGE>

Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attn: Legal Department
Telecopy: (203)618-2132
Telephone: (203)618-2700

                                       I-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.54
<SEQUENCE>14
<FILENAME>c91685exv10w54.txt
<DESCRIPTION>AMENDMENT NO. 1 TO AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.54

                               AMENDMENT NO. 1 TO
                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

            This Amendment No. 1 (this "Amendment"), dated as of April 29, 2005
amends the Amended and Restated Note Purchase Agreement, dated as of April 16,
2004 (the "Agreement"), among Option One Owner Trust 2001-1A, a Delaware
statutory trust (the "Company"), Greenwich Capital Financial Products, Inc. a
Delaware corporation (the "Purchaser") and Option One Loan Warehouse
Corporation, a California corporation (the "Depositor").

                                    RECITALS

            WHEREAS, the parties hereto have entered into the Agreement;

            WHEREAS, the parties hereto now wish to amend certain provisions in
the Agreement pursuant to Section 10.01 of the Agreement;

            NOW, THEREFORE, in consideration of the promises and mutual
agreements contained herein, the parties hereto agree to amend the Agreement
pursuant to Section 10.01 of the Agreement and restate certain provisions
thereof as follows:

            1. Defined Terms. Unless defined in this Amendment, capitalized
terms used in this Amendment (including the preamble) shall have the meaning
given such terms in the Agreement.

            2. Amendment to Section 1.1 of the Agreement. The following defined
term in Section 1.1 of the Agreement are hereby deleted in their entirety and
substituted therefor the following:

            "Maximum Note Principal Balance" means an amount equal to (i) the
Maximum Note Principal Balance as defined in the Pricing Side Letter (including
only such portion thereof that is included at the sole discretion of the Initial
Noteholder as is actually advanced and then outstanding), less (i) any
reductions pursuant to Section 2.06 of the Sale and Servicing Agreement, less
(ii) the aggregate outstanding principal balance of the Option One Owner Trust
2001-1B Mortgage-Backed Note issued by the Option One Owner Trust 2001-1B and
less (iii) the aggregate amount outstanding from time to time under any secured
loan or repurchase facility entered into by Greenwich, or its Affiliates, and
Option One Mortgage Corporation, or its Subsidiaries.

            3. Amendment to Section 4.01(o) of the Agreement. Subsection (o) of
Section 4.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:

            (o) Financial Covenants. The Loan Originator and the Servicer shall
<PAGE>

be in compliance with the Financial Covenants.

            For the avoidance of doubt, this Amendment shall not affect the
obligation of the Loan Originator to pay at least $1,250,000 in release fees
earned during the period from July 8, 2002 to July 7, 2003.

            4. Amendment to Section 5.01(g) of the Agreement. Subsection (g) of
Section 5.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:

            (g) The Issuer is not in violation of its organizational documents
or in default under any agreement, indenture or instrument the effect of which
violation or default would be materially adverse to the Issuer or the
transactions contemplated by the Basic Documents. The Issuer is not a party to,
bound by or in breach or violation of any indenture or other agreement or
instrument, or subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over the Issuer that materially and adversely affects, or may in
the future materially and adversely affect (i) the ability of the Issuer to
perform its obligations under any of the Basic Documents to which it is a party
or (ii) the business, operations, financial condition, properties, assets or
prospects of the Issuer.

            5. Amendment to Section 5.01(h) of the Agreement. Subsection (h) of
Section 5.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:

            (h) There are no actions or proceedings against, or investigations
of, the Issuer pending, or, to the knowledge of the Issuer threatened, before
any Governmental Authority, court, arbitrator, administrative agency or other
tribunal (i) asserting the invalidity of any of the Basic Documents, or (ii)
seeking to prevent the issuance of the Purchased Note or the consummation of any
of the transactions contemplated by the Basic Documents or the Purchased Note,
or (iii) that, if adversely determined, could materially and adversely affect
the validity or enforceability of, or the performance by the Issuer of its
respective obligations under, any of the Basic Documents to which it is a party
or (iv) seeking to affect adversely the income tax attributes of the Purchased
Note.

            5. Amendment to Section 8.05 of the Agreement. Section 8.05 of the
Agreement is hereby deleted in its entirety and substituted therefor with the
following:

            SECTION 8.05. Confidentiality. Each of the Purchaser, the Issuer and
the Depositor shall hold in confidence all Confidential Information and shall
not, at any time hereafter, use, disclose or divulge any such information,
knowledge or data to any Person except:

                                       2
<PAGE>

            (a)   Information which at the time of disclosure is a part of the
                  public knowledge or literature and readily accessible;

            (b)   Information as required to be disclosed by a Governmental
                  Authority;

            (c)   Disclosure to a Person that has entered into a confidentiality
                  agreement, acceptable to the Purchaser, the Issuer and the
                  Depositor; or

            (d)   Information that is deemed by the Purchaser reasonably
                  necessary to disclose in connection with its exercise of any
                  rights or remedies under the Basic Documents.

Nothing herein shall, however, prevent the ultimate corporate parent of the
Depositor, for so long as it shall be a company whose securities are registered
under the Securities Act, from disclosing the terms of, and filing with the
Securities and Exchange Commission copies of, and disseminating to other Persons
following such filing, the Basic Documents. All such disclosures are expressly
approved by all parties hereto.

            6. Condition to Effectiveness. As a condition to the effectiveness
of this Amendment, the Purchaser shall have given its consent.

            7. Effect of Amendment. Upon the execution of this Amendment and the
attached consent of Purchaser, the Agreement shall be modified and amended in
accordance herewith and the respective rights, limitations, obligations, duties,
liabilities and immunities of each party to the Agreement shall hereafter be
determined, exercised and enforced subject in all respects to such modifications
and amendments, and all the terms and conditions of this Amendment shall be and
be deemed to be part of the terms and conditions of the Agreement for any and
all purposes as of the date first set forth above. The Agreement, as amended
hereby, is hereby ratified and confirmed in all respects.

            8. The Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, all the terms and conditions of the Agreement shall
remain in full force and effect and, except as expressly provided herein, the
effectiveness of this Amendment shall not operate as, or constitute a waiver or
modification of, any right, power or remedy of any party to the Agreement. All
references to the Agreement in any other document or instrument shall be deemed
to mean the Agreement as amended by this Amendment.

            9. Counterparts. This Amendment may be executed by the parties in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement. This Amendment
shall become effective when counterparts hereof executed on behalf of such party
shall have been received.

                                       3
<PAGE>

            10. Governing Law. This Amendment shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein.

            IN WITNESS WHEREOF, the Company, the Purchaser and the Depositor
have caused this Amendment to be duly executed by their respective officers,
effective as of the day and year first above written.

                                 OPTION ONE OWNER TRUST 2001-1A,
                                 as Company

                                 By: WILMINGTON TRUST COMPANY,
                                 not in its individual capacity but solely as
                                 Owner Trustee

                                 By: /s/ Mary Kay Pupillo
                                     ----------------------------------------
                                     Name: Mary Kay Pupillo
                                     Title: Assistant Vice President

                                 GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.,
                                 as the Purchaser

                                 By: /s/ Anthony Palmisano
                                     ----------------------------------------
                                     Name: Anthony Palmisano
                                     Title: Managing Director

                                 OPTION ONE LOAN WAREHOUSE CORPORATION
                                 as the Depositor

                                 By: /s/ David S. Wells
                                     ----------------------------------------
                                     Name: David S. Wells
                                     Title: Assistant Secretary

                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.55
<SEQUENCE>15
<FILENAME>c91685exv10w55.txt
<DESCRIPTION>SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.55

================================================================================

            SECOND AMENDED AND RESTATED SALE AND SERVICING AGREEMENT

                                      among

                         OPTION ONE OWNER TRUST 2001-1B

                                    as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION

                                  as Depositor

                                       and

                         OPTION ONE MORTGAGE CORPORATION
                         as Loan Originator and Servicer

                                       and

                             WELLS FARGO BANK, N.A.
                              as Indenture Trustee

                           Dated as of April 29, 2005

                         OPTION ONE OWNER TRUST 2001-1B
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
ARTICLE I      DEFINITIONS

    Section 1.01   Definitions......................................................................           1
    Section 1.02   Other Definitional Provisions....................................................          31

ARTICLE II     CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES

    Section 2.01   Conveyance of the Trust Estate; Additional Note Principal Balances...............          32
    Section 2.02   Ownership and Possession of Loan Files...........................................          34
    Section 2.03   Books and Records; Intention of the Parties......................................          34
    Section 2.04   Delivery of Loan Documents.......................................................          35
    Section 2.05   Acceptance by the Indenture Trustee of the Loans; Certain Substitutions
                   and Repurchases; Certification by the Custodian..................................          36
    Section 2.06   Conditions Precedent to Transfer Dates, Funding Dates and Collateral
                   Value Increase Dates.............................................................          38
    Section 2.07   Termination of Revolving Period..................................................          41
    Section 2.08   Correction of Errors.............................................................          41

ARTICLE III    REPRESENTATIONS AND WARRANTIES

    Section 3.01   Representations and Warranties of the Depositor..................................          42
    Section 3.02   Representations and Warranties of the Loan Originator............................          44
    Section 3.03   Representations, Warranties and Covenants of the Servicer........................          46
    Section 3.04   Reserved.........................................................................          49
    Section 3.05   Representations and Warranties Regarding Loans...................................          49
    Section 3.06   Purchase and Substitution........................................................          49
    Section 3.07   Dispositions.....................................................................          52
    Section 3.08   Servicer Put; Servicer Call......................................................          55
    Section 3.09   Modification of Underwriting Guidelines..........................................          55

ARTICLE IV     ADMINISTRATION AND SERVICING OF THE LOANS

    Section 4.01   Servicer's Servicing Obligations.................................................          55

ARTICLE V      ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

    Section 5.01   Collection Account and Distribution Account......................................          56
    Section 5.02   Payments to Securityholders......................................................          60
    Section 5.03   Trust Accounts; Trust Account Property...........................................          61
    Section 5.04   Advance Account..................................................................          63
    Section 5.05   Transfer Obligation Account......................................................          63
    Section 5.06   Transfer Obligation..............................................................          64

ARTICLE VI     STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

    Section 6.01   Statements.......................................................................          66
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                                                           <C>
    Section 6.02   Specification of Certain Tax Matters.............................................          68
    Section 6.03   Valuation of Loans and Residual Securities, Hedge Value and
                     Retained Securities Value; Market Value Agent..................................          69

ARTICLE VII    HEDGING; FINANCIAL COVENANTS

    Section 7.01   Hedging Instruments..............................................................          70
    Section 7.02   Financial Covenants..............................................................          71

ARTICLE VIII   THE SERVICER

    Section 8.01   Indemnification; Third Party Claims..............................................          71
    Section 8.02   Merger or Consolidation of the Servicer..........................................          73
    Section 8.03   Limitation on Liability of the Servicer and Others...............................          74
    Section 8.04   Servicer Not to Resign;Assignment................................................          74
    Section 8.05   Relationship of Servicer to Issuer and the Indenture Trustee.....................          74
    Section 8.06   Servicer May Own Securities......................................................          75
    Section 8.07   Indemnification of the Indenture Trustee and Initial Noteholder..................          75

ARTICLE IX     SERVICER EVENTS OF DEFAULT

    Section 9.01   Servicer Events of Default.......................................................          75
    Section 9.02   Appointment of Successor.........................................................          77
    Section 9.03   Waiver of Defaults...............................................................          78
    Section 9.04   Accounting Upon Termination of Servicer..........................................          79

ARTICLE X      TERMINATION; PUT OPTION

    Section 10.01  Termination......................................................................          79
    Section 10.02  Optional Termination.............................................................          80
    Section 10.03  Notice of Termination............................................................          80
    Section 10.04  Put Option.......................................................................          80

ARTICLE XI     MISCELLANEOUS PROVISIONS

    Section 11.01  Acts of Securityholders..........................................................          81
    Section 11.02  Amendment........................................................................          81
    Section 11.03  Recordation of Agreement.........................................................          82
    Section 11.04  Duration of Agreement............................................................          82
    Section 11.05  Governing Law....................................................................          82
    Section 11.06  Notices..........................................................................          82
    Section 11.07  Severability of Provisions.......................................................          83
    Section 11.08  No Partnership...................................................................          83
    Section 11.09  Counterparts.....................................................................          83
    Section 11.10  Successors and Assigns...........................................................          83
    Section 11.11  Headings.........................................................................          83
    Section 11.12  Actions of Securityholders.......................................................          83
    Section 11.13  Non-Petition Agreement...........................................................          84
    Section 11.14  Holders of the Securities........................................................          84
    Section 11.15  Due Diligence Fees, Due Diligence................................................          84
    Section 11.16  No Reliance......................................................................          85
    Section 11.17  Confidential Information.........................................................          86
    Section 11.18  Conflicts........................................................................          87
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                                       <C>
Section 11.19  Limitation on Liability..........................................................          87
Section 11.20  No Agency........................................................................          87
</TABLE>

                                      iii

<PAGE>

                          SALE AND SERVICING AGREEMENT

      This Second Amended and Restated Sale and Servicing Agreement is entered
into effective as of April 29, 2005, among OPTION ONE OWNER TRUST 2001-1B, a
Delaware business trust (the "Issuer" or the "Trust"), OPTION ONE LOAN WAREHOUSE
CORPORATION, a Delaware corporation, as Depositor (in such capacity, the
"Depositor"), OPTION ONE MORTGAGE CORPORATION, a California corporation ("Option
One"), as Loan Originator (in such capacity, the "Loan Originator") and as
Servicer (in such capacity, the "Servicer"), and WELLS FARGO BANK, N.A.
(formerly known as Wells Fargo Bank Minnesota, National Association), a national
banking association, as Indenture Trustee on behalf of the Noteholders (in such
capacity, the "Indenture Trustee").

                              W I T N E S S E T H:

      In consideration of the mutual agreements herein contained, the Issuer,
the Depositor, the Loan Originator, the Servicer and the Indenture Trustee
hereby agree as follows for the benefit of each of them and for the benefit of
the holders of the Securities:

                                   ARTICLE I

                                   DEFINITIONS

      Section 1.01 Definitions.

      Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

      2001-1A Sale and Servicing Agreement: The Sale and Servicing Agreement,
dated as of April 1, 2001, and as amended and restated through and including
April 16, 2004, among Option One Owner Trust 2001 -1A, the Depositor, Option One
and the Indenture Trustee.

      Accepted Servicing Practices: The Servicer's normal servicing practices in
servicing and administering similar mortgage loans for its own account, which in
general will conform to the mortgage servicing practices of prudent mortgage
lending institutions which service for their own account mortgage loans of the
same type as the Loans in the jurisdictions in which the related Mortgaged
Properties are located and will give due consideration to the Noteholders'
reliance on the Servicer.

      Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment Date,
the period commencing on and including the first Transfer Date (which first
Transfer Date is the first date on which the Note Principal Balance is greater
than zero)) and ending on the day preceding the related Payment Date.

      Act or Securities Act: The Securities Act of 1933, as amended.

                                       1

<PAGE>

      Additional Advance Rate: As defined in the Pricing Side Letter.

      Additional LIBOR Margin: As defined in the Pricing Side Letter.

      Additional Note Balance: As defined in the Advance Indenture.

      Additional Note Principal Balance: With respect to each (i) Transfer Date,
the aggregate Sales Prices of all Loans and Residual Securities conveyed on such
date and (ii) Funding Date, the amount of Additional Note Balance purchased by
the Issuer from the Advance Trust on such date.

      Adjustment Date: With respect to each ARM, the date set forth in the
related Promissory Note on which the Loan Interest Rate on such ARM is adjusted
in accordance with the terms of the related Promissory Note.

      Administration Agreement: The Administration Agreement, dated as of April
1, 2001, among the Issuer and the Administrator.

      Administrator: Option One Mortgage Corporation, in its capacity as
Administrator under the Administration Agreement.

      Advance Account: The account established and maintained pursuant to
Section 5.04.

      Advance Depositor: Option One Advance Corporation.

      Advance Documents: The "Transaction Documents" as defined in the Advance
Indenture.

      Advance Indenture: The Indenture, dated as of November 1, 2003, between
Option One Advance Trust 2003-ADV1, as issuer and Wells Fargo Bank Minnesota,
National Association, not in its individual capacity, but solely as indenture
trustee.

      Advance Note: Any of the Advance Trust's Advance Receivables Backed Notes,
Series 2003-ADV1, executed, authenticated and delivered under the Advance
Indenture.

      Advance Note Event of Default: An "Event of Default" as defined in the
Advance Indenture.

      Advance Note Purchase Agreement: The Note Purchase Agreement, dated as of
November 1, 2003, among the Advance Trust, Option One Owner Trust 2001-1A,
Option One Owner Trust 2001-1B, Option One Owner Trust 2001-2 and Greenwich
Capital Financial Products, Inc. as agent.

      Advance Trust: Option One Advance Trust 2003-ADV1.

      Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct

                                       2

<PAGE>

the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.

      Agreement: This Agreement, as the same may be amended and supplemented
from time to time.

      ALTA: The American Land Title Association and its successors in interest.

      Appraised Value: With respect to any Loan, and the related Mortgaged
Property, the lesser of:

                  (i) the lesser of (a) the value thereof as determined by an
appraisal made for the originator of the Loan at the time of origination of the
Loan by an appraiser who met the minimum requirements of Fannie Mae or Freddie
Mac or through an automated appraisal process consistent with the Underwriting
Guidelines, and (b) the value thereof as determined by a review appraisal
conducted by the Loan Originator in the event any such review appraisal
determines an appraised value more than 10% lower than the value thereof, in the
case of a Loan with a Loan-to-Value Ratio less than or equal to 80%, or more
than 5% lower than the value thereof, in the case of a Loan with a Loan-to-Value
Ratio greater than 80%, as determined by the appraisal referred to in clause
(i)(a) above; and

                  (ii) the purchase price paid for the related Mortgaged
Property by the Borrower with the proceeds of the Loan; provided, however, that
in the case of a refinanced Loan (which is a Loan the proceeds of which were not
used to purchase the related Mortgaged Property) or a Loan originated in
connection with a "lease option purchase" if the "lease option purchase price"
was set 12 months or more prior to origination, such value of the Mortgaged
Property is based solely upon clause (i) above.

                  (iii) ARM: Any Loan, the Loan Interest Rate with respect to
which is subject to adjustment during the life of such Loan.

      Assignment: With respect to the Loans, an LPA Assignment or S&SA
Assignment. With respect to the Residual Securities, an RSTA Assignment or S&SA
Assignment.

      Assignment of Mortgage: With respect to any Loan, an assignment of the
related Mortgage in blank or to Wells Fargo Bank, N.A., as custodian or trustee
under the applicable custodial agreement or trust agreement, and notice of
transfer or equivalent instrument in recordable form, sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to reflect
the assignment and pledge of such Mortgage.

      Balloon Loan: Any Loan for which the related monthly payments, other than
the monthly payment due on the maturity date stated in the Promissory Note, are
computed on the basis of a period to full amortization ending on a date that is
later than such maturity date.

      Basic Documents: This Agreement, the Administration Agreement, the
Custodial Agreement, the Indenture, the Loan Purchase and Contribution
Agreement, the Master Disposition Confirmation Agreement, the Note Purchase
Agreement, the Guaranty, the Advance

                                       3

<PAGE>

Note Purchase Agreement, the Trust Agreement, the Residual Securities Transfer
Agreement, each Hedging Instrument and, as and when required to be executed and
delivered, the Assignments.

      Bill of Sale: With respect to any Funding Date, a bill of sale,
substantially in the form attached as Exhibit C to the Receivables Purchase
Agreement, delivered by Option One and the Depositor to the Issuer, the Agent
and the Indenture Trustee pursuant to the Receivables Purchase Agreement.

      Block: Block Financial Corporation, A Delaware corporation, and any
successor thereto.

      Borrower: The obligor or obligors on a Promissory Note.

      Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which the New York Stock Exchange, the Federal Reserve Bank of New York or
banking institutions in New York City, California, Maryland, Minnesota,
Pennsylvania, Delaware or in the city in which the corporate trust office of the
Indenture Trustee is located or the city in which the Servicer's servicing
operations are located are authorized or obligated by law or executive order to
be closed, or (iii) a day on which trading in securities on the New York Stock
Exchange or any other major securities exchange in the United States is not
conducted.

      Certificateholder: A holder of a Trust Certificate.

      Change of Control: As defined in the Indenture.

      Clean-up Call Date: The first Payment Date occurring after the end of the
Revolving Period and the date on which the Note Principal Balance declines to
10% or less of the aggregate Note Principal Balance as of the end of the
Revolving Period.

      Closing Date: April 18, 2001.

      Code: The Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated by the United States Treasury thereunder.

      Collateral Percentage: As defined in the Pricing Side Letter.

      Collateral Value: As defined in the Pricing Side Letter.

      Collateral Value Increase Date: any date following the related Transfer
Date that the Collateral Value of specified Mortgage Loans shall be 102%
pursuant to clause (III)(a)(2)(A) of the definition of Collateral Value.

      Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01(a)(1) hereof.

      Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio of
the outstanding Principal Balance on the related date of origination of (a) (i)
such Loan plus (ii) the loan constituting the first lien to the lesser of (b)
(x) the Appraised Value of the Mortgaged

                                       4

<PAGE>

Property at origination or (y) if the Mortgaged Property was purchased within 12
months of the origination of the Loan, the purchase price of the Mortgaged
Property, expressed as a percentage.

      Commission: The Securities and Exchange Commission.

      Convertible Loan: A Loan that by its terms and subject to certain
conditions contained in the related Mortgage or Promissory Note allows the
Borrower to convert the adjustable Loan Interest Rate on such Loan to a fixed
Loan Interest Rate.

      Credit Score: With respect to each Borrower, the credit score for such
Borrower from a nationally recognized credit repository; provided, however, in
the event that a credit score for such Borrower was obtained from two
repositories, the "Credit Score" shall be the lower of the two scores; provided,
further, in the event that a credit score for such Borrower was obtained from
three repositories, the "Credit Score" shall be the middle score of the three
scores.

      Custodial Agreement: The custodial agreement dated as of April 1, 2001,
among the Issuer, the Servicer, the Indenture Trustee and the Custodian,
providing for the retention of the Custodial Loan Files by the Custodian on
behalf of the Indenture Trustee.

      Custodial Loan File: As defined in the Custodial Agreement.

      Custodian: The custodian named in the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Loan Originator, the Depositor or
any Subservicer. Wells Fargo Bank, N.A., a national banking association, shall
be the initial Custodian pursuant to the terms of the Custodial Agreement.

      Custodian Fee: For any Payment Date, the fee payable to the Custodian on
such Payment Date as set forth in the Custodian Fee Notice for such Payment
Date, which fee shall be calculated in accordance with the separate fee letter
between the Custodian and the Servicer.

      Custodian Fee Notice: For any Payment Date, the written notice provided by
the Custodian to the Servicer and the Indenture Trustee pursuant to Section
6.01, which notice shall specify the amount of the Custodian Fee payable on such
Payment Date.

      Daily Interest Accrual Amount: With respect to each day and the related
Accrual Period, the sum of (i) interest accrued at the Note Interest Rate with
respect to such Accrual Period on the Note Principal Balance as of the preceding
Business Day minus the principal balance of the Advance Note and the portion of
the Note Principal Balance related to the Residual Securities as of the
preceding Business Day after giving effect to all changes to the Note Principal
Balance, the principal amount of the Advance Note and the portion of the Note
Principal Balance related to the Residual Securities on or prior to such
preceding Business Day and (ii) interest accrued at the Additional Advance Rate
plus the Additional LIBOR Margin on the portion of the Note Principal Balance
equal to the outstanding principal balance of the Advance Note and the portion
of the Note Principal Balance related to the Residual Securities as of the
preceding Business Day after giving effect to all changes to the principal
amount of the Advance Note and the portion of the Note Principal Balance related
to the Residual Securities on or prior to such Business Day.

                                       5

<PAGE>

      Deemed Cured: With respect to the occurrence of a Performance Trigger or
Rapid Amortization Trigger, when the condition that originally gave rise to the
occurrence of such trigger has not continued for 20 consecutive days, or if the
occurrence of such Performance Trigger or Rapid Amortization Trigger has been
waived in writing by the Majority Noteholder.

      Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.

      Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan with respect to which any of
the following has occurred as of the end of the related Remittance Period: (a)
foreclosure or similar proceedings have been commenced; or (b) the Servicer or
any Subservicer has determined in good faith and in accordance with the
servicing standard set forth in Section 4.01 of the Servicing Addendum that such
Loan is in default or imminent default.

      Deleted Loan: A Loan replaced or to be replaced by one or more Qualified
Substitute Loans.

      Deleted Residual Security: A Residual Security replaced or to be replaced
by one or more Qualified Substitute Residual Securities.

      Delinquent: A Loan is "Delinquent" if any Monthly Payment due thereon is
not made by the close of business on the day such Monthly Payment is required to
be paid. A Loan is "30 days Delinquent" if any Monthly Payment due thereon has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such Monthly Payment was required to
be paid or, if there is no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was required to be paid on the 31st
day of such month), then on the last day of such immediately succeeding month.
The determination of whether a Loan is "60 days Delinquent," "90 days
Delinquent", etc., shall be made in like manner.

      Delivery: When used with respect to Trust Account Property means:

            (a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-105(1)(i) of the UCC and are
susceptible of physical delivery (except with respect to Trust Account Property
consisting of certificated securities (as defined in Section 8-102(a)(4) of the
UCC)), physical delivery to the Indenture Trustee or its custodian (or the
related Securities Intermediary) endorsed to the Indenture Trustee or its
custodian (or the related Securities Intermediary) or endorsed in blank (and if
delivered and endorsed to the Securities Intermediary, by continuous credit
thereof by book-entry to the related Trust Account);

            (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the Indenture
Trustee or endorsed in blank to its custodian or the related Securities
Intermediary and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to
the related Trust Account, or (ii) by delivery thereof to a "clearing
corporation" (as defined in Section 8-102(5) of the UCC) and the making by such
clearing corporation of

                                       6

<PAGE>

appropriate entries in its records crediting the securities account of the
related Securities Intermediary by the amount of such certificated security and
the making by such Securities Intermediary of appropriate entries in its records
identifying such certificated securities as credited to the related Trust
Account (all of the Trust Account Property described in Subsections (a) and (b),
"Physical Property");

            and, in any event, any such Physical Property in registered form
shall be in the name of the Indenture Trustee or its nominee or custodian (or
the related Securities Intermediary); and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof;

            (c) with respect to any security issued by the U.S. Treasury, Fannie
Mae or Freddie Mac that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable federal
regulations and Articles 8 and 9 of the UCC: the making by a Federal Reserve
Bank of an appropriate entry crediting such Trust Account Property to an account
of the related Securities Intermediary or the securities intermediary that is
(x) also a "participant" pursuant to applicable federal regulations and (y) is
acting as securities intermediary on behalf of the Securities Intermediary with
respect to such Trust Account Property; the making by such Securities
Intermediary or securities intermediary of appropriate entries in its records
crediting such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations and Articles 8 and 9 of the UCC to
the related Trust Account; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of any
such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and

            (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and that
is not governed by clause (c) above, registration in the records of the issuer
thereof in the name of the related Securities Intermediary, and the making by
such Securities Intermediary of appropriate entries in its records crediting
such uncertificated security to the related Trust Account.

      Designated Depository Institution: With respect to an Eligible Account, an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the long-term deposits of which shall be
rated A or better by S&P or A2 or better by Moody's and the short-term deposits
of which shall be rated P-1 or better by Moody's and A-1 or better by S&P,
unless otherwise approved in writing by the Initial Noteholder and which is any
of the following: (A) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (B) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (C) a national banking association duly
organized, validly existing and in good standing under the federal banking laws,
(D) a principal subsidiary of a bank holding company or (E) approved in writing
by the Initial Noteholder and, in each case acting or designated by the Servicer
as the

                                       7

<PAGE>

depository institution for the Eligible Account; provided, however, that any
such institution or association shall have combined capital, surplus and
undivided profits of at least $50,000,000.

      Depositor: Option One Loan Warehouse Corporation, a Delaware corporation,
and any successors thereto.

      Determination Date: With respect to any Payment Date occurring on the 10th
day of a month, the last calendar day of the month immediately preceding the
month of such Payment Date, and with respect to any other Payment Date, as
mutually agreed by the Servicer and the Noteholders.

      Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans or Residual Securities.

      Disposition Agent: Greenwich Capital Markets, Inc. and its successors and
assigns acting at the direction, and as agent, of the Majority Noteholders.

      Disposition Participant: As applicable, with respect to a Disposition, any
"depositor" with respect to such Disposition, the Disposition Agent, the
Majority Noteholders, the Issuer, the Servicer, the related trustee and the
related custodian, any nationally recognized credit rating agency, the related
underwriters, the related placement agent, the related credit enhancer, the
related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.

      Disposition Proceeds: With respect to a Disposition, (x) the proceeds of
the Disposition remitted to the Trust in respect of the Loans or Residual
Securities transferred on the date of and with respect to such Disposition,
including without limitation, any cash and Retained Securities created in any
related Securitization less all costs, fees and expenses incurred in connection
with such Disposition, including, without limitation, all amounts deposited into
any reserve accounts upon the closing thereof plus or minus (y) the net positive
or net negative value of all Hedging Instruments terminated in connection with
such Disposition minus (z) all other amounts agreed upon in writing by the
Initial Noteholder, the Trust and the Servicer.

      Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(2) hereof.

      Due Date: The day of the month on which the Monthly Payment is due from
the Borrower with respect to a Loan.

      Due Diligence Fees: Shall have the meaning provided in Section 11.15
hereof.

      Eligible Account: At any time, an account which is: (i) maintained with a
Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a
trust account (which shall be a "segregated trust account") maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or trust company

                                       8

<PAGE>

shall have capital and surplus of not less than $50,000,000; or (iv) with the
prior written consent of the Majority Noteholders, any other account.

      Eligible Servicer: (x) Option One or (y) any other Person that (a) (i) has
been designated as an approved seller-servicer by Fannie Mae or Freddie Mac for
first and second mortgage loans and (ii) has equity of not less than
$15,000,000, as determined in accordance with GAAP or (b) any other Person to
which the Majority Noteholders may consent in writing.

      Escrow Payments: With respect to any Loan, the amounts constituting ground
rents, taxes, assessments, water rates, sewer rents, municipal charges, fire,
hazard, liability and other insurance premiums, condominium charges, and any
other payments required to be escrowed by the related Borrower with the lender
or servicer pursuant to the Mortgage or any other document.

      Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.

      Exceptions Report: The meaning set forth in the Custodial Agreement.

      Exchange Act: The Securities Exchange Act of 1934, as amended.

      Fannie Mae: The Federal National Mortgage Association and any successor
thereto.

      FDIC: The Federal Deposit Insurance Corporation and any successor thereto.

      Fidelity Bond: As described in Section 4.10 of the Servicing Addendum.

      Final Put Date: The Put Date following the end of the Revolving Period on
which the Majority Noteholders exercise the Put Option with respect to the
entire outstanding Note Principal Balance.

      Final Recovery Determination: With respect to any defaulted Loan or any
Foreclosure Property, a determination made by the Servicer that all Mortgage
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

      Financial Covenants: With respect to Option One, the following financial
covenants:

      (a) Option One must maintain a minimum "Tangible Net Worth" (defined and
determined in accordance with GAAP and exclusive of (i) any loans outstanding to
any officer or director of Option One or its Affiliates (ii) any intangibles
(other than originated or purchased servicing rights) and (iii) any receivables
from Block) of $425 million as of any day.

      (b) Option One must maintain a ratio of 1.0 or greater at any time
pursuant to the Capital Adequacy Test, attached as Exhibit I hereto.

                                       9

<PAGE>

      (c) Option One may not exceed a maximum non-warehouse leverage ratio (the
ratio of (i) the sum of (A) all funded debt (excluding debt from Block or any of
its Affiliates and all non-recourse debt) less (B) 91% of its mortgage loan
inventory held for sale less (C) 90% of servicing advance receivables
(determined and valued in accordance with GAAP) to (ii) Tangible Net Worth) of
0.50x at any time. Any direct or indirect debt provided by Block will be subject
to the Subordination Agreement; or, if Block does not enter into the
Subordination Agreement, the maximum permitted non-warehousing leverage ratio
including debt from Block will be 1.0x at any time, provided, that no more than
0.5x of such non-warehouse leverage ratio can be funded by entities not
affiliated with Option One or Block.

      (d) Option One must maintain a minimum liquidity facility (defined as a
committed, unsecured, non-amortizing liquidity facility from Block not to mature
(scheduled or accelerated) prior to the Maturity Date) in an amount no less than
$150 million. Such facility from Block cannot contain covenants or termination
events more restrictive than the covenants or termination events contained in
the Basic Documents.

      (e) Option One must maintain a minimum "Net Income" (defined and
determined in accordance with GAAP) of at least $1 based on the total of the
current quarter combined with the previous three quarters.

      First Lien Loan: A Loan secured by the lien on the related Mortgaged
Property, subject to no prior liens on such Mortgaged Property.

      Foreclosed Loan: As of any Determination Date, any Loan that as of the end
of the preceding Remittance Period has been discharged as a result of (i) the
completion of foreclosure or comparable proceedings by the Servicer on behalf of
the Issuer; (ii) the acceptance of the deed or other evidence of title to the
related Mortgaged Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition of title to the related Mortgaged Property
by operation of law.

      Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer on behalf of the Issuer through foreclosure,
deed in lieu of foreclosure or similar proceedings in respect of the related
Loan.

      Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.

      Funding Account: As defined in the Advance Indenture.

      Funding Date: With respect to the Advance Note, the day on which
Additional Note Balance is purchased by the Issuer under the Advance Note
Purchase Agreement.

      Funding Notice: As defined in the Advance Indenture.

      GAAP: Generally Accepted Accounting Principles as in effect in the United
States.

      Gross Margin: With respect to each ARM, the fixed percentage amount set
forth in the related Promissory Note.

                                       10

<PAGE>

      Guaranty: The Guaranty made by H&R Block, Inc. in favor of the Indenture
Trustee and the Noteholders.

      Hedge Funding Requirement: With respect to any day, all amounts required
to be paid or delivered by the Issuer under any Hedging Instrument, whether in
respect of payments thereunder or in order to meet margin, collateral or other
requirements thereof. Such amounts shall be calculated by the Market Value Agent
and the Indenture Trustee shall be notified of such amount by the Market Value
Agent.

      Hedge Value: With respect to any Business Day and a specific Hedging
Instrument, the positive amount, if any, that is equal to the amount that would
be paid to the Issuer in consideration of an agreement between the Issuer and an
unaffiliated third party, that would have the effect of preserving for the
Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument
until the termination thereof, as determined by the Market Value Agent in
accordance with Section 6.03 hereof.

      Hedging Counterparty: A Person (i) (A) the long-term and commercial paper
or short-term deposit ratings of which are acceptable to the Majority
Noteholders and (B) which shall agree in writing that, in the event that any of
its long-term or commercial paper or short-term deposit ratings cease to be at
or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the request of the Majority
Noteholders, (ii) that has entered into a Hedging Instrument and (iii) that is
acceptable to the Majority Noteholders.

      Hedging Instrument: Any interest rate cap agreement, interest rate floor
agreement, interest rate swap agreement or other interest rate hedging agreement
entered into by the Issuer with a Hedging Counterparty, and which requires the
Hedging Counterparty to deposit all amounts payable thereby directly to the
Collection Account. Each Hedging Instrument shall meet the requirements set
forth in Article VII hereof with respect thereto.

      Indenture: The Indenture dated as of April 1, 2001, and as amended and
restated through and including April 29, 2005, between the Issuer and the
Indenture Trustee, as the same may be further amended from time to time.

      Indenture Trustee: Wells Fargo Bank, N.A., a national banking association,
as Indenture Trustee under the Indenture, or any successor indenture trustee
under the Indenture.

      Indenture Trustee Fee: An annual fee of $5,000 payable by the Servicer in
accordance with a separate fee agreement between the Indenture Trustee and the
Servicer and Section 5.01 hereof.

      Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates, (ii) does not have any direct financial
interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or

                                       11

<PAGE>

Person performing similar functions; provided, however, that a Person shall not
fail to be Independent of the Loan Originator, the Depositor, the Servicer or
any of their respective Affiliates merely because such Person is the beneficial
owner of 1% or less of any class of securities issued by the Loan Originator,
the Depositor, the Servicer or any of their respective Affiliates, as the case
may be.

      Independent Accountants: A firm of nationally recognized certified public
accountants which is independent according to the provisions of SEC Regulation
S-X, Article 2.

      Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.

      Initial Noteholder: Steamboat Funding Corporation or an Affiliate thereof
identified in writing by Greenwich Capital Financial Products, Inc. to the
Indenture Trustee and the other parties hereto. Interest Carry-Forward Amount:
With respect to any Payment Date, the excess, if any, of (A) the Interest
Payment Amount for such Payment Date plus the Interest Carry-Forward Amount for
the prior Payment Date over (B) the amount in respect of interest that is
actually paid from the Distribution Account on such Payment Date in respect of
the interest for such Payment Date.

      Interest Payment Amount: With respect to any Payment Date, the sum of the
Daily Interest Accrual Amounts for all days in the related Accrual Period.

      LIBOR Business Day: Any day on which banks in the City of London are open
and conducting transactions in United States dollars.

      LIBOR Determination Date: With respect to each Accrual Period, the second
LIBOR Business Day preceding the commencement of such Accrual Period.

      LIBOR Margin: As defined in the Pricing Side Letter.

      Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge,
security interest, hypothecation, option or encumbrance of any kind in respect
of such asset or (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.

      Lifetime Cap: The provision in the Promissory Note for each ARM which
limits the maximum Loan Interest Rate over the life of such ARM.

      Lifetime Floor: The provision in the Promissory Note for each ARM which
limits the minimum Loan Interest Rate over the life of such ARM.

      Liquidated Loan: As defined in Section 4.03(c) of the Servicing Addendum.

                                       12

<PAGE>

      Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds allocable
to principal received on or prior to such date.

      Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts
received in connection with the liquidation of such Liquidated Loan, whether
through trustee's sale, foreclosure sale or other disposition, any cash amounts
received in connection with the management of the Mortgaged Property from
Defaulted Loans, any proceeds from Primary Insurance Policies and any other
amounts required to be deposited in the Collection Account pursuant to Section
5.01(b)(1) hereof, in each case other than Mortgage Insurance Proceeds and
Released Mortgaged Property Proceeds. Liquidation Proceeds shall also include
any awards or settlements in respect of the related Mortgage Property, whether
permanent or temporary, partial or entire, by exercise of the power of eminent
domain or condemnation.

      Loan: Any loan sold to the Trust hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) a Promissory Note or Lost
Note Affidavit and related Mortgage and (ii) all right, title and interest of
the Loan Originator in and to the Mortgaged Property covered by such Mortgage.
The term Loan shall be deemed to include the related Promissory Note or Lost
Note Affidavit, related Mortgage and related Foreclosure Property, if any.

      Loan Documents: With respect to a Loan, the documents comprising the
Custodial Loan File for such Loan or with respect to a Residual Security, the
related pooling and servicing agreement or indenture, the physical Residual
Security unless such Residual Security is held in book-entry form and any
transferor letters, transferee letters, assignments or bond powers required
under the related pooling and servicing agreement, the related indenture or
applicable law to transfer such Residual Security.

      Loan File: With respect to each Loan, the Custodial Loan File and the
Servicer's Loan File.

      Loan Interest Rate: With respect to each Loan, the annual rate of interest
borne by the related Promissory Note, as shown on the Loan Schedule, and, in the
case of an ARM, as the same may be periodically adjusted in accordance with the
terms of such Loan.

      Loan Originator: Option One and its permitted successors and assigns.

      Loan Pool: As of any date of determination, the pool of all Loans conveyed
to the Issuer pursuant to this Agreement on all Transfer Dates up to and
including such date of determination, which Loans have not been released from
the Lien of the Indenture pursuant to the terms of the Basic Documents, together
with the rights and obligations of a holder thereof, and the payments thereon
and proceeds therefrom received on and after the applicable Transfer Cut-off
Date, as identified from time to time on the Loan Schedule.

      Loan Purchase and Contribution Agreement: The Loan Purchase and
Contribution Agreement, between Option One, as seller and the Depositor, as
purchaser, dated as of April 1, 2001, and all supplements and amendments
thereto.

                                       13

<PAGE>

      Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing
Date and on each Transfer Date and delivered to the Initial Noteholder and the
Custodian in the form of a computer-readable transmission specifying the
information set forth on Exhibit D hereto and, with respect to Wet Funded Loans,
Exhibit C to the Custodial Agreement.

      Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the ratio
of the original outstanding principal amount of such Loan to the Appraised Value
of the Mortgaged Property at origination.

      Lost Note Affidavit: With respect to any Loan as to which the original
Promissory Note has been permanently lost or destroyed and has not been
replaced, an affidavit from the Loan Originator certifying that the original
Promissory Note has been lost, misplaced or destroyed (together with a copy of
the related Promissory Note and indemnifying the Issuer against any loss, cost
or liability resulting from the failure to deliver the original Promissory Note)
in the form of Exhibit L attached to the Custodial Agreement.

      LPA Assignment: The assignment of Loans from Option One to the Depositor
under the Loan Purchase and Contribution Agreement.

      Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

      Majority Noteholders: The holder or holders of in excess of 50% of the
Note Principal Balance. In the event of the release of the Lien of the Indenture
in accordance with the terms thereof, the Majority Noteholders shall mean the
Majority Certificateholders.

      Market Value: The market value of a Loan or Residual Security as of any
Business Day as determined by the Market Value Agent in accordance with Section
6.03 hereof.

      Market Value Agent: Greenwich Capital Financial Products, Inc. or an
Affiliate thereof designated by Greenwich Capital Financial Products, Inc. in
writing to the parties hereto and, in either case, its successors in interest.

      Master Disposition Confirmation Agreement: The Master Disposition
Confirmation Agreement, dated as of April 1, 2001, by and among Option One, the
Depositor, Option One Owner Trust 2001-1A, Option One Owner Trust 2001-1B,
Option One Owner Trust 2001-2, Wells Fargo Bank Minnesota, National Association,
Bank of America, N.A., Greenwich Capital Financial Products, Inc., and Steamboat
Funding Corporation.

      Maturity Date: With respect to the Notes, as set forth in the Indenture or
such later date as may be agreed in writing by the Majority Noteholders.

      Maximum Note Principal Balance: As defined in Section 1.01 of the Note
Purchase Agreement.

      Monthly Advance: The aggregate of the advances made by the Servicer on any
Remittance Date pursuant to Section 4.14 of the Servicing Addendum.

                                       14

<PAGE>

      Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Borrower on the related Loan, as set forth in
the related Promissory Note.

      Monthly Remittance Amount: With respect to each Remittance Date, the sum,
without duplication, of (i) the aggregate payments on the Loans collected by the
Servicer pursuant to Section 5.01(b)(1)(i) during the immediately preceding
Remittance Period and (ii) the aggregate of amounts deposited into the
Collection Account pursuant to Section 5.01(b)(1)(ii) through 5.01(b)(1)(xi)
during the immediately preceding Remittance Period.

      Moody's: Moody's Investors Service, Inc., or any successor thereto.

      Mortgage: With respect to any Loan, the mortgage, deed of trust or other
instrument securing the related Promissory Note, which creates a first or second
lien on the fee in real property and/or a first or second lien on the leasehold
in real property securing the Promissory Note and the assignment of rents and
leases related thereto.

      Mortgage Insurance Policies: With respect to any Mortgaged Property or
Loan, the insurance policies required pursuant to Section 4.08 of the Servicing
Addendum.

      Mortgage Insurance Proceeds: With respect to any Mortgaged Property, all
amounts collected in respect of Mortgage Insurance Policies and not required
either pursuant to applicable law or the related Loan Documents to be applied to
the restoration of the related Mortgaged Property or paid to the related
Borrower.

      Mortgaged Property: With respect to a Loan, the related Borrower's fee
and/or leasehold interest in the real property (and/or all improvements,
buildings, fixtures, building equipment and personal property thereon (to the
extent applicable) and all additions, alterations and replacements made at any
time with respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by the related Promissory Note.

      Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the prior Remittance Period, net of any reimbursements
to the Servicer made from such amounts for any unreimbursed Servicing
Compensation and Servicing Advances (including Nonrecoverable Servicing
Advances) made and any other fees and expenses paid in connection with the
foreclosure, inspection, conservation and liquidation of the related Liquidated
Loans or Foreclosure Properties pursuant to Section 4.03 of the Servicing
Addendum.

      Net Loan Losses: With respect to any Defaulted Loan that is subject to a
modification pursuant to Section 4.01 of the Servicing Addendum, an amount equal
to the portion of the Principal Balance, if any, released in connection with
such modification.

      Net Worth: With respect to any Person, the excess of total assets of such
Person, over total liabilities of such Person, determined in accordance with
GAAP.

      Nonrecoverable Monthly Advance: Any Monthly Advance previously made or
proposed to be made with respect to a Loan or Foreclosure Property that, in the
good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, will
not, or, in the case of a proposed Monthly Advance,

                                       15

<PAGE>

would not be, ultimately recoverable from the related late payments, Mortgage
Insurance Proceeds, Liquidation Proceeds or condemnation proceeds on such Loan
or Foreclosure Property as provided herein.

      Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Liquidation Proceeds,
Mortgage Insurance Proceeds or the Released Mortgaged Property Proceeds on the
related Loan or Foreclosure Property or (b) a Servicing Advance proposed to be
made in respect of a Loan or Foreclosure Property either of which, in the good
faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Initial Noteholder, would
not be ultimately recoverable.

      Nonutilization Fee: As defined in the Pricing Side Letter.

      Note: The meaning assigned thereto in the Indenture.

      Noteholder: The meaning assigned thereto in the Indenture.

      Note Interest Rate: With respect to each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin and the Additional LIBOR Margin for such Accrual Period.

      Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased on
or prior to such date pursuant to the Note Purchase Agreement less (b) all
amounts previously distributed in respect of principal of the Notes on or prior
to such day.

      Note Purchase Agreement: The Note Purchase Agreement, dated as of April
18, 2001, and as amended and restated through and including April 29, 2005,
among the Initial Noteholder, the Issuer and the Depositor, as The same may be
amended from time to time.

      Note Redemption Amount: As of any Determination Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date,
(iii) any Servicing Advance Reimbursement Amount as of such Determination Date
and (iv) all amounts due to Hedging Counterparties in respect of the termination
of all related Hedging Instruments.

      Officer's Certificate: A certificate signed by a Responsible Officer of
the Depositor, the Loan Originator, the Servicer or the Issuer, in each case, as
required by this Agreement.

      One-Month LIBOR: With respect to each Accrual Period, the rate determined
by the Initial Noteholder on the related LIBOR Determination Date on the basis
of the offered rate for one-month U.S. dollar deposits, as such rate appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on such LIBOR Determination
Date; provided that if such rate does not appear on Telerate Page 3750, the rate
for such date will be determined on the basis of the offered rates of the
Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London
time) on such LIBOR Determination Date. In such event, the Initial Noteholder
will request the principal

                                       16

<PAGE>

London office of each of the Reference Banks to provide a quotation of its rate.
If on such LIBOR Determination Date, two or more Reference Banks provide such
offered quotations, One-Month LIBOR for the related Accrual Period shall be the
arithmetic mean of all such offered quotations (rounded to the nearest whole
multiple of 1/16%). If on such LIBOR Determination Date, fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the Accrual
Period shall be the higher of (i) LIBOR as determined on the previous LIBOR
Determination Date and (ii) the Reserve Interest Rate. Notwithstanding the
foregoing, if, under the priorities described above, One-Month LIBOR for a LIBOR
Determination Date would be based on One-Month LIBOR for the previous LIBOR
Determination Date for the third consecutive LIBOR Determination Date, the
Initial Noteholder shall select an alternative comparable index (over which the
Initial Noteholder has no control), used for determining one-month Eurodollar
lending rates that is calculated and published (or otherwise made available) by
an independent party.

      Opinion of Counsel: A written opinion of counsel who may be employed by
the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

      Option One: Option One Mortgage Corporation, a California corporation.

      Overcollateralization Shortfall: As defined in the Pricing Side Letter.

      Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.

      Owner Trustee Fee: The annual fee of $4,000 payable in equal monthly
installments to the Servicer pursuant to Section 5.01(c)(3)(i) which shall in
turn pay such amount annually to the Owner Trustee on the anniversary of the
Closing Date occurring each year during the term of this Agreement.

      Paying Agent: The meaning assigned thereto in the Indenture.

      Payment Date: Each of, (i) the 10th day of each calendar month commencing
on the first such 10th day to occur after the first Transfer Date, or if any
such day is not a Business Day, the first Business Day immediately following
such day, (ii) any day a Loan or Residual Security is sold pursuant to the terms
hereof, (iii) a Put Date as specified by the Majority Noteholder pursuant to
Section 10.05 of the Indenture, and (iv) an additional Payment Date pursuant to
Section 5.01(c)(4)(i) and 5.01(c)(4)(iii). From time to time, the Majority
Noteholders and the Issuer may agree, upon written notice to the Owner Trustee
and the Indenture Trustee, to additional Payment Dates in accordance with
Section 5.01(c)(4)(ii).

      Payment Statement: As defined in Section 6.01(b) hereof.

      Percentage Interest: As defined in the Trust Agreement.

      Performance Trigger: Shall exist, as of any Determination Date, if the
aggregate Principal Balance of all Loans that are not Scratch & Dent Loans and
that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date

                                       17

<PAGE>

divided by the Pool Principal Balance as of such Determination Date is greater
than 2%, provided, however, that a Performance Trigger shall not occur if such
percentage is reduced to less than 2% within 5 Business Days of such
Determination Date as the result of the exercise of a Servicer Call. A
Performance Trigger shall continue to exist until Deemed Cured.

      Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note, which
is the maximum annual percentage by which the Loan Interest Rate for such Loan
may increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on
such Rate Change Date from the Loan Interest Rate in effect immediately prior to
such Rate Change Date.

      Permitted Investments: Each of the following:

            (e) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.

            (f) Federal Housing Administration debentures rated Aa2 or higher by
Moody's and AA or better by S&P.

            (g) Freddie Mac senior debt obligations rated Aa2 or higher by
Moody's and AA or better by S&P.

            (h) Federal Home Loan Banks' consolidated senior debt obligations
rated Aa2 or higher by Moody's and AA or better by S&P.

            (i) Fannie Mae senior debt obligations rated Aa2 or higher by
Moody's.

            (j) Federal funds, certificates or deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 or better by Moody's.

            (k) Investment agreements approved by the Initial Noteholder
provided:

                  (1) The agreement is with a bank or insurance company which
has an unsecured, uninsured and unguaranteed obligation (or claims-paying
ability) rated Aa2 or better by Moody's and AA or better by S&P, and

                  (2) Monies invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice (provided such
notice may be amended or canceled at any time prior to the withdrawal date), and

                  (3) The agreement is not subordinated to any other obligations
of such insurance company or bank, and

                                       18

<PAGE>

                  (4) The same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement, and

                  (5) The Indenture Trustee and the Initial Noteholder receive
an opinion of counsel that such agreement is an enforceable obligation of such
insurance company or bank.

            (l) Commercial paper (having original maturities of not more than
365 days) rated A-1 or better by S&P and P-1 or better by Moody's.

            (m) Investments in money market funds rated AAAM or AAAM-G by S&P
and Aaa or P-1 by Moody's.

            (n) Investments approved in writing by the Initial Noteholder;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

      Each reference in this definition to the Rating Agency shall be construed,
as a reference to each of S&P and Moody's.

      Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.

      Physical Property: As defined in clause (b) of the definition of
"Delivery" above.

      Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of such Determination Date.

      Prepaid Installment: With respect to any Loan, any installment of
principal thereof and interest thereon received prior to the scheduled Due Date
for such installment, intended by the Borrower as an early payment thereof and
not as a Prepayment with respect to such Loan.

      Prepayment: Any payment of principal of a Loan which is received by the
Servicer in advance of the scheduled due date for the payment of such principal
(other than the principal portion of any Prepaid Installment), and the proceeds
of any Mortgage Insurance Policy which are to be applied as a payment of
principal on the related Loan shall be deemed to be Prepayments for all purposes
of this Agreement.

                                       19

<PAGE>

      Preservation Expenses: Expenditures made by the Servicer in connection
with a foreclosed Loan prior to the liquidation thereof, including, without
limitation, expenditures for real estate property taxes, hazard insurance
premiums, property restoration or preservation.

      Pricing Side Letter: The pricing letter of even date herewith, signed by
the parties hereto.

      Primary Insurance Policy: A policy of primary mortgage guaranty insurance
issued by a Qualified Insurer pursuant to Section 4.06 of the Servicing
Addendum.

      Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other date of determination, the
outstanding unpaid principal balance of the Loan as of the end of the preceding
Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan
prior to the end of such Remittance Period); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero. With
respect to any Residual Security, (i) at the Transfer Cut-off Date the Transfer
Cut-off Date Principal Balance and (ii) with respect to any other date of
determination, the outstanding unpaid principal balance of the Residual Security
as of such date.

      Proceeding: Means any suit in equity, action at law or other judicial or
administrative proceeding.

      Promissory Note: With respect to a Loan, the original executed promissory
note or other evidence of the indebtedness of the related Borrower or Borrowers.

      Put/Call Loan: Any (i) non-Scratch & Dent Loan that has become 30 or more
days (but less than 60 days) Delinquent, (ii) non-Scratch & Dent Loan that has
become 60 or more days (but less than 90 days) Delinquent, (iii) non-Scratch &
Dent Loan that has become 90 or more days Delinquent, (iv) non-Scratch & Dent
Loan that is a Defaulted Loan, (v) non-Scratch & Dent Loan that has been in
default for a period of 30 days or more (other than a Loan referred to in clause
(i), (ii), (iii) or (iv) hereof), (vi) non-Scratch & Dent Loan that does not
meet criteria established by independent rating agencies or surety agency
conditions for Dispositions which criteria have been established at the related
Transfer Date and may be modified only to match changed criteria of independent
rating agencies or surety agents, or (vii) non-Scratch & Dent Loan that is
inconsistent with the intended tax status of a Securitization.

      Put Date: Any date on which all or a portion of the Notes are to be
purchased by the Issuer as a result of the exercise of the Put Option.

      Put Option: The right of the Majority Noteholders to require the Issuer to
repurchase all or a portion of the Notes in accordance with Section 10.04 of the
Indenture.

      QSPE Affiliate: Option One Owner Trust 2001-1A, Option One Owner Trust
2001-2, Option One Owner Trust 2002-3, Option One Owner Trust 2003-4. Option One
Owner Trust 2003-5 or any other Affiliate which is a "qualified special purpose
entity" in accordance with Financial Accounting Standards Board's Statement No.
140 or 125.

                                       20

<PAGE>

      Qualified Insurer: An insurance company duly qualified as such under the
laws of the states in which the Mortgaged Property is located, duly authorized
and licensed in such states to transact the applicable insurance business and to
write the insurance provided and that meets the requirements of Fannie Mae and
Freddie Mac.

      Qualified Substitute Loan: A Loan or Loans substituted for a Deleted Loan
pursuant to Section 3.06 hereof, which (i) has or have been approved in writing
by the Majority Noteholders and (ii) complies or comply as of the date of
substitution with each representation and warranty set forth in Exhibit E and is
or are not 30 or more days Delinquent as of the date of substitution for such
Deleted Loan or Loans.

      Qualified Substitute Residual Security: A Residual Security or Residual
Securities substituted for a Deleted Residual Security pursuant to Section 3.06
hereof, which has or have been approved in writing by the Majority Noteholders.

      Rapid Amortization Trigger: Shall exist, as of any Determination Date, if
the aggregate Principal Balance of all Loans that are not Scratch & Dent Loans
and that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 3%; provided, however,
that a Rapid Amortization Trigger shall not occur if such percentage is reduced
to less than 3% within 5 Business Days of such Determination Date as a result of
the exercise of a Servicer Call. A Rapid Amortization Trigger shall continue to
exist until it is Deemed Cured.

      Rate Change Date: The date on which the Loan Interest Rate of each ARM is
subject to adjustment in accordance with the related Promissory Note.

      Rating Agencies: S&P and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.

      Receivables Purchase Agreement: The Receivables Purchase Agreement, dated
as of November 1, 2003, among Option One, the Advance Depositor and the Advance
Trust.

      Receivables Seller: Option One.

      Record Date: With respect to each Payment Date, the close of business of
the immediately preceding Business Day.

      Reference Banks: Deutsche Bank National Trust Company, Barclay's Bank PLC,
The Tokyo Mitsubishi Bank and National Westminster Bank PLC and their successors
in interest; provided, however, that if the Initial Noteholder determines that
any of the foregoing banks are not suitable to serve as a Reference Bank, then
any leading banks selected by the Initial Noteholder with the approval of the
Issuer, which approval shall not be unreasonably withheld, which are engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London and (ii) which have been
designated as such by the Initial Noteholder with the approval of the Issuer,
which approval shall not be unreasonably withheld.

                                       21

<PAGE>

      Refinanced Loan: A Loan the proceeds of which were not used to purchase
the related Mortgaged Property.

      Released Mortgaged Property Proceeds: With respect to any Loan, proceeds
received by the Servicer in connection with (i) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (ii) any
release of part of the Mortgaged Property from the lien of the related Mortgage,
whether by partial condemnation, sale or otherwise; which proceeds in either
case are not released to the Borrower in accordance with applicable law and/or
Accepted Servicing Practices.

      Remittance Date: The Business Day immediately preceding each Payment Date.

      Remittance Period: With respect to any Payment Date, the period commencing
immediately following the Determination Date for the preceding Payment Date (or,
in the case of the initial Payment Date, commencing immediately following the
initial Transfer Cut-off Date) and ending on and including the related
Determination Date.

      Repurchase Price: With respect to a Loan the sum of (i) the Principal
Balance thereof as of the date of purchase or repurchase, plus (ii) all accrued
and unpaid interest on such Loan to the date of purchase or repurchase computed
at the applicable Loan Interest Rate, plus (iii) the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Loan (after
deducting therefrom any amounts received in respect of such purchased or
repurchased Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase). The
Repurchase Price shall be (i) increased by the net negative value or (ii)
decreased by the net positive value of all Hedging Instruments terminated with
respect to the purchase of such Loan. To the extent the Servicer does not
reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such
Loan, the Repurchase Price shall be reduced by such amounts. With respect to a
Residual Security the sum of (i) the Principal Balance thereof as of the date of
purchase or repurchase, plus (ii) all accrued and unpaid interest on such
Residual Security to the date of purchase or repurchase computed at the
applicable Residual Security Interest Rate.

      Residual Security: Any security sold to the Trust hereunder and pledged to
the Indenture Trustee, which security must be (i) a mortgage-backed security
issued by Option One Mortgage Acceptance Corp. and evidencing an interest in a
securitization trust backed by residential mortgage loans, which mortgage loans
are serviced by Option One (including, without limitation, securities designated
as class C certificates and class P certificates that meet the foregoing
criteria) or (ii) net interest margin security issued by a trust sponsored by
Option One and backed by class C certificates and/or class P certificates, which
certificates are in turn backed by residential mortgage loans serviced by Option
One.

      Residual Securities Interest Rate: With respect to each Residual Security,
the annual rate of interest borne by such Residual Security.

                                       22

<PAGE>

      Residual Securities Pool: As of any date of determination, the pool of all
Residual Securities conveyed to the Issuer pursuant to this Agreement on all
Transfer Dates up to and including such date of determination, which Residual
Securities have not been released from the Lien of the Indenture pursuant to the
terms of the Basic Documents, together with the rights and obligations of a
holder thereof, and the payments thereon and proceeds therefrom received on and
after the applicable Transfer Cut-off Date, as identified from time to time on
the Residual Securities Schedule.

      Residual Securities Schedule: The schedule of Residual Securities conveyed
to the Issuer on the Closing Date and on each Transfer Date and delivered to the
Initial Noteholder in the form of a computer-readable transmission specifying
the information set forth on Exhibit G hereto.

      Residual Securities Transfer Agreement: The Residual Securities Transfer
Agreement dated as of April 16, 2004, between the Loan Originator and the
Depositor, as the same may be further amended or supplemented from time to time.

      Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Initial Noteholder determines to be either (i) the
arithmetic mean (rounded to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Initial Noteholder are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or (ii)
in the event that the Initial Noteholder can determine no such arithmetic mean,
the lowest one-month U.S. dollar lending rate which New York City banks selected
by the Initial Noteholder are quoting on such LIBOR Determination Date to
leading European banks.

      Responsible Officer: When used with respect to the Indenture Trustee or
Custodian, any officer within the corporate trust office of such Person,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer or any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Administrator to the Owner Trustee on the date hereof (as such list may
be modified or supplemented from time to time thereafter) and, so long as the
Administration Agreement is in effect, any Vice President or more senior officer
of the Administrator who is authorized to act for the Administrator in matters
relating to the Issuer and to be acted upon by the Administrator pursuant to the
Administration Agreement and who is identified on the list of Responsible
Officers delivered by the Administrator to the Owner Trustee on the date hereof
(as such list may be modified or supplemented from time to time thereafter).
When used with respect to the Depositor, the Loan Originator or the Servicer,
the President, any Vice President, or the Treasurer.

      Retained Securities: With respect to a Securitization, any subordinated
securities issued or expected to be issued, or excess collateral value retained
or expected to be retained, in

                                       23

<PAGE>

connection therewith to the extent the Depositor, the Loan Originator or an
Affiliate thereof retains, instead of sell, such securities.

      Retained Securities Value: With respect to any Business Day and a Retained
Security, the market value thereof as determined by the Market Value Agent in
accordance with Section 6.03(d) hereof.

      Revolving Period: With respect to the Notes, the period commencing on
April 29, 2005 and ending on the earlier of (i) April 28, 2006 and (ii) the date
on which the Revolving Period is terminated pursuant to Section 2.07.

      RSTA Assignment: The assignment of Residual Securities from Option One to
the Depositor under the Residual Securities Transfer Agreement.

      Sales Price: With respect to each Loan and each Residual Security and any
Transfer Date, the sum of the Collateral Values with respect to such Loan or
such Residual Security conveyed on such Transfer Date as of such Transfer Date.

      S&SA Assignment: An assignment, in the form of Exhibit C hereto, of Loans
or Residual Securities and other property from the Depositor to the Issuer
pursuant to this Agreement.

      Scratch & Dent Loan: A Loan identified as having minor documentation,
appraisal or underwriting deficiencies, which Loan may not be Delinquent on the
Transfer Date; provided, that the Loan Originator has provided a detailed
description of such deficiencies to the Initial Noteholder prior to the Transfer
Date (or, with respect to Loans that become Scratch & Dent Loans after the
Transfer Date, within one Business Day of the discovery, of such deficiencies);
provided further, however, that any Scratch & Dent Loan which has deficiencies
that render it an Unqualified Loan will be repurchased or substituted pursuant
to the procedures in Section 3.05.

      Second Lien Loan: A Loan secured by the lien on the Mortgaged Property,
subject to one Senior Lien on such Mortgaged Property.

      Securities: The Notes and the Trust Certificates.

      Securities Intermediary: A "securities intermediary" as defined in Section
8-102(a)(14) of the UCC that is holding a Trust Account for the Indenture
Trustee as the sole "entitlement holder" as defined in Section 8-102(a)(7) of
the UCC.

      Securitization: A sale or transfer of Loans or Residual Securities by the
Issuer at the direction of the Majority Noteholders to any other Person in order
to effect one or a series of structured-finance securitization transactions,
including but not limited to transactions involving the issuance of securities
which may be treated for federal income tax purposes as indebtedness of Option
One or one or more of its wholly-owned subsidiaries.

      Securityholder: Any Noteholder or Certificateholder.

                                       24

<PAGE>

      Senior Lien: With respect to any Second Lien Loan, the mortgage loan
having a senior priority lien on the related Mortgaged Property.

      Servicer: Option One, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.

      Servicer Call: The optional repurchase by the Servicer of a Loan pursuant
to Section 3.08(b) hereof.

      Servicer Event of Default: As described in Section 9.01 hereof.

      Servicer Put: The mandatory repurchase by the Servicer, at the option of
the Majority Noteholders, of a Loan pursuant to Section 3.08(a) hereof.

      Servicer's Fiscal Year: May 1st of each year through April 30th of the
following year.

      Servicer's Loan File: With respect to each Loan, the file held by the
Servicer, consisting of all documents (or electronic images thereof) relating to
such Loan, including, without limitation, copies of all of the Loan Documents
included in the related Custodial Loan File.

      Servicer's Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.

      Servicing Addendum: The terms and provisions set forth in Exhibit F
attached hereto relating to the administration and servicing of the Loans.

      Servicing Advance Reimbursement Amount: With respect to any Determination
Date, the amount of any Servicing Advances that have not been reimbursed as of
such date, including Nonrecoverable Servicing Advances.

      Servicing Advances: As defined in Section 4.14(b) of the Servicing
Addendum.

      Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 4.15 of the Servicing Addendum.

      Servicing Fee: As to each Loan (including any Loan that has been
foreclosed and for which the related Mortgaged Property has become a Foreclosure
Property, but excluding any Liquidated Loan), the fee payable monthly to the
Servicer, which shall be the product of 0.50% (50 basis points), or such other
lower amount as shall be mutually agreed to in writing by the Majority
Noteholders and the Servicer, and the Principal Balance of such Loan as of the
beginning of the related Remittance Period, divided by 12. The Servicing Fee
shall only be payable to the extent interest is collected on a Loan.

      Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers annexed to an
Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, on the date hereof to the Issuer and the Indenture Trustee, on
behalf of the Noteholders, as such list may from time to time be amended.

                                       25

<PAGE>

      S&P: Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc.

      State: Means any one of the states of the United States of America or the
District of Columbia.

      Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.22 of the Servicing Addendum in respect of
the qualifications of a Subservicer.

      Subservicing Account: An account established by a Subservicer pursuant to
a Subservicing Agreement, which account must be an Eligible Account.

      Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in Section 4.22 in the Servicing Addendum.

      Subsidiary: With respect to any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

      Substitution Adjustment: With respect to any Loan, as to any date on which
a substitution occurs pursuant to Section 2.05 or Section 3.06 hereof, the
amount, if any, by which (a) the aggregate principal balance of any Qualified
Substitute Loans (after application of principal payments received on or before
the related Transfer Cut-off Date) is less than (b) the aggregate of the
Principal Balances of the related Deleted Loans as of the first day of the month
in which such substitution occurs. With respect to any Residual Security, as to
any date on which a substitution occurs pursuant to Section 2.05 or Section 3.06
hereof, the amount, if any, by which (a) the aggregate principal balance of any
Qualified Substitute Residual Security (after application of principal payments
received on or before the related Transfer Cut-off Date) is less than (b) the
aggregate of the Principal Balances of the related Deleted Residual Securities
as of the first day of the month in which such substitution occurs.

      Tangible Net Worth: With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that residual securities issued by such Person or its
Subsidiaries shall not be treated as intangibles for purposes of this
definition.

                                       26

<PAGE>

      Termination Price: As of any Determination Date, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
end of the preceding Remittance Period; (ii) all unpaid interest accrued on the
Principal Balance of each such Loan at the related Loan Interest Rate to the end
of the preceding Remittance Period; (iii) the aggregate fair market value of
each Foreclosure Property included in the Trust as of the end of the preceding
Remittance Period, as determined by an Independent appraiser acceptable to the
Majority Noteholders as of a date not more than 30 days prior to such Payment
Date; (iv) the Note Principal Balance of the Advance Note as of such date; (v)
all accrued and unpaid interest on the Advance Note; (v) the Principal Balance
of each Residual Security as of such date; (vi) all accrued and unpaid interest
on the Residual Security as of such date; and (vii) all other amounts due under
the Advance Documents.

      Transfer Cut-off Date: With respect to each Loan or Residual Security, the
first day of the month in which the Transfer Date with respect to such Loan or
Residual Security occurs or, with respect a Loan originated in such month, the
date of origination.

      Transfer Cut-off Date Principal Balance: As to each Loan or Residual
Security, its Principal Balance as of the opening of business on the Transfer
Cut-off Date (after giving effect to any payments received on the Loan or
Residual Security before the Transfer Cut-off Date).

      Transfer Date: With respect to each Loan or Residual Security, the day
such Loan or Residual Security is either (i) sold and conveyed to the Depositor
by the Loan Originator pursuant to the Loan Purchase and Contribution Agreement
or the Residual Securities Transfer Agreement and to the Issuer by the Depositor
pursuant to Section 2.01 hereof or (ii) sold to the Issuer pursuant to the
Master Disposition Confirmation Agreement, which results in an increase in the
Note Principal Balance by the related Additional Note Principal Balance. With
respect to any Qualified Substitute Loan or Qualified Substitute Residual
Security, the Transfer Date shall be the day such Loan is conveyed to the Trust
pursuant to Section 2.05 or 3.06.

      Transfer Obligation: The obligation of the Loan Originator under Section
5.06 hereof to make certain payments in connection with Dispositions and other
related matters.

      Transfer Obligation Account: The account designated as such, established
and maintained pursuant to Section 5.05 hereof.

      Transfer Obligation Target Amount: With respect to any Payment Date, the
cumulative total of all withdrawals pursuant to Section 5.05(e), 5.05(f),
5.05(g), and 5.05(h) hereof from the Transfer Obligation Account to but not
including such Payment Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Loan Originator pursuant to Section
5.05(i)(i).

      Trust: Option One Owner Trust 2001-1B, the Delaware business trust created
pursuant to the Trust Agreement.

      Trust Agreement: The Trust Agreement dated as of April 1, 2001 among the
Depositor and the Owner Trustee.

                                       27

<PAGE>

      Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.

      Trust Accounts: The Distribution Account, the Collection Account and the
Transfer Obligation Account.

      Trust Certificate: The meaning assigned thereto in the Trust Agreement.

      Trust Estate: Shall mean the assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Loans as from time to time are subject to this Agreement as listed in
the Loan Schedule, as the same may be amended or supplemented on each Transfer
Date and by the removal of Deleted Loans and Unqualified Loans and by the
addition of Qualified Substitute Loans, together with the Servicer's Loan Files
and the Custodial Loan Files relating thereto and all proceeds thereof, (ii) the
Mortgages and security interests in the Mortgaged Properties, (iii) all payments
in respect of interest and principal with respect to each Loan and Residual
Security received on or after the related Transfer Cut-off Date, (iv) such
assets as from time to time are identified as Foreclosure Property, (v) such
assets and funds as are from time to time deposited in the Distribution Account,
Collection Account and the Transfer Obligation Account, including, without
limitation, amounts on deposit in such accounts that are invested in Permitted
Investments, (vi) lenders' rights under all Mortgage Insurance Policies and to
any Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds and Released
Mortgaged Property Proceeds, (viii) all right, title and interest of the Trust
(but none of the obligations) in and to the obligations of Hedging
Counterparties under Hedging Instruments (ix) the Advance Note and all right,
title and interest of the Trust in and under the Advance Documents, including
without limitation, all voting and consent rights of the Noteholders thereunder,
(x) such Residual Securities as from time to time are subject to this Agreement
as listed in the Residual Securities Schedule, as the same may be amended or
supplemented on each Transfer Date and by the removal of Deleted Residual
Securities and Unqualified Residual Securities and by the addition of Qualified
Substitute Residual Securities, together with the Loan Documents relating
thereto and all proceeds thereof and (xi) all right, title and interest of each
of the Depositor, the Loan Originator and the Trust in and under the Basic
Documents including, without limitation, the obligations of the Loan Originator
under the Loan Purchase and Contribution Agreement, the Master Disposition
Confirmation Agreement and the Residual Securities Transfer Agreement, and all
proceeds of any of the foregoing.

      Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Owner Trustee Fee, the Indenture Trustee Fee and the
Custodian Fee, if any, and any expenses of the foregoing.

      UCC: The Uniform Commercial Code as in effect in the State of New York.

      UCC Assignment: A form "UCC-2" or "UCC-3" statement meeting the
requirements of the Uniform Commercial Code of the relevant jurisdiction to
reflect an assignment of a secured party's interest in collateral.

                                       28

<PAGE>

      UCC-1 Financing Statement: A financing statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction.

      Underwriting Guidelines: The underwriting guidelines (including the loan
origination guidelines) of the Loan Originator, as the same may be amended from
time to time with notice to the Initial Noteholder.

      Unfunded Transfer Obligation: With respect to any date of determination,
an amount equal to (x) the sum of (A) 10% of the aggregate Collateral Value (as
of the related Transfer Date) of all Loans sold hereunder, plus (B) 10% of the
aggregate Collateral Value (as of the related Funding Date) of the initial
principal balance of the Advance Note and all Additional Note Balance related
thereto purchased by the Issuer, plus (C) 10% of the aggregate Collateral Value
(as of the related Transfer Date) of all Residual Securities sold hereunder,
plus (D) any amounts withdrawn from the Transfer Obligation Account for return
to the Loan Originator pursuant to Section 5.05(i)(i) hereof prior to such
Payment Date, less (y) the sum of (i) the aggregate amount of payments actually
made by the Loan Originator in respect of the Transfer Obligation pursuant to
Section 5.06, (ii) the amount obtained by multiplying (a) the Unfunded Transfer
Obligation Percentage by (b) the aggregate Collateral Value (as of the related
date of Disposition) of all Loans and Residual Securities that have been subject
to a Disposition and (iii) without duplication, the aggregate amount of the
Repurchase Prices paid by the Servicer in respect of any Servicer Puts.

      Unfunded Transfer Obligation Percentage: As of any date of determination,
an amount equal to (x) the Unfunded Transfer Obligation as of such date, divided
by (y) 100% of the aggregate Collateral Values as of the related Transfer Date
of all Loans in the Loan Pool and all Residual Securities in the Residual
Securities Pool..

      Unqualified Loan: As defined in Section 3.06(a) hereof.

      Unqualified Residual Security As defined in Section 3.06(a) hereof.

      Wet Funded Custodial File Delivery Date: With respect to a Wet Funded
Loan, the later of the fifteenth Business Day and the twentieth calendar day
after the related Transfer Date, provided that if a Default or Event of Default
shall have occurred, the Wet Funded Custodial File Delivery Date shall be the
earlier of (x) such fifteenth Business Day or twentieth calendar day and (y) the
fifth day after the occurrence of such event.

      Wet Funded Loan: A Loan for which the related Custodial Loan File shall
not have been delivered to the Custodian as of the related Transfer Date. Whole
Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.

      Section 1.02 Other Definitional Provisions.

            (a) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of

                                       29

<PAGE>

agreements or instruments) references to all attachments thereto and
instruments incorporated therein; references to a Person are also to its
permitted successors and assigns.

            (b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.

            (c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.

            (d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."

            (e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.

                                   ARTICLE II

       CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES

      Section 2.01 Conveyance of the Trust Estate; Additional Note Principal
Balances.

            (a) (i) On the terms and conditions of this Agreement, on each
Transfer Date during the Revolving Period, the Depositor agrees to offer for
sale and to sell a portion of each of the Loans or Residual Securities, as
applicable, and contribute to the capital stock of the Issuer the balance of
each of the Loans or Residual Securities, as applicable, and deliver the related
Loan Documents to or at the direction of the Issuer. To the extent the Issuer
has or is able to obtain sufficient funds under the Note Purchase Agreement and
the Notes for the purchase thereof, the Issuer agrees to purchase such Loans
offered for sale by the Depositor. On the terms and conditions of this Agreement
and the Master Disposition Confirmation Agreement, on each Transfer Date during
the Revolving Period, the Issuer may acquire Loans from another QSPE Affiliate
of the Loan Originator to the extent the Issuer has or is able to obtain
sufficient funds for the purchase thereof. On the terms and conditions of this
Agreement and the Residual Securities Transfer Agreement, on each Transfer Date
during the Revolving Period, the Issuer may acquire Residual Securities from the
Loan Originator to the extent the Issuer has or is able to obtain sufficient
funds for the purchase thereof. On the terms and conditions of this Agreement
and the Advance Note Purchase Agreement, on each Funding Date during the

                                       30

<PAGE>

Revolving Period, the Issuer shall acquire Additional Note Balance from the
Advance Trust to the extent the Issuer has or is able to obtain sufficient funds
under the Note Purchase Agreement and the Notes for the purchase thereof.

                  (ii) On each Transfer Date, in consideration of the payment of
the Additional Note Principal Balance pursuant to Section 2.06(a) hereof and as
a contribution to the assets of the Issuer, the Depositor as of the related
Transfer Date and concurrently with the execution and delivery hereof, hereby
sells, transfers, assigns, sets over and otherwise conveys to the Issuer,
without recourse, but subject to the other terms and provisions of this
Agreement, all of the right, title and interest of the Depositor in and to the
Trust Estate.

                  (iii) During the Revolving Period, on each Transfer Date,
subject to the conditions precedent set forth in Section 2.06(a) and in
accordance with the procedures set forth in Section 2.01(c), the Depositor,
pursuant to an S&SA Assignment, will assign to the Issuer without recourse all
of its respective right, title and interest, in and to the Loans and Residual
Securities and all proceeds thereof listed on the Loan Schedule or Residual
Securities Schedule, as applicable, attached to such S&SA Assignment, including
all interest and principal received by the Loan Originator, the Depositor or the
Servicer on or with respect to the Loans or Residual Securities on or after the
related Transfer Cut-off Date, together with all right, title and interest in
and to the proceeds of any related Mortgage Insurance Policies and all of the
Depositor's rights, title and interest in and to (but none of its obligations
under) the Loan Purchase and Contribution Agreement, the Residual Securities
Transfer Agreement and all proceeds of the foregoing.

                  (iv) The foregoing sales, transfers, assignments, set overs
and conveyances do not, and are not intended to, result in a creation or an
assumption by the Issuer of any of the obligations of the Depositor, the Loan
Originator or any other Person in connection with the Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.

            (b) As of the Closing Date and as of each Transfer Date and each
Funding Date, the Issuer acknowledges the conveyance to it of the Trust Estate,
including, as applicable, all rights, title and interest of the Depositor and
any QSPE Affiliate in and to the Trust Estate, receipt of which is hereby
acknowledged by the Issuer. Concurrently with such delivery, as of the Closing
Date and as of each Transfer Date and each Funding Date, pursuant to the
Indenture the Issuer pledges the Trust Estate to the Indenture Trustee. In
addition, concurrently with such delivery and in exchange therefor, the Owner
Trustee, pursuant to the instructions of the Depositor, has executed (not in its
individual capacity, but solely as Owner Trustee on behalf of the Issuer) and
caused the Trust Certificates to be authenticated and delivered to or at the
direction of the Depositor.

            (c) (i) Pursuant to and subject to the Note Purchase Agreement, the
Trust may, at its sole option, from time to time request that the Initial
Noteholder advance on any Transfer Date Additional Note Principal Balances and
the Initial Noteholder shall remit on such Transfer Date, to the Advance
Account, an amount equal to the Additional Note Principal Balance. In addition,
if the Initial Noteholder determines on any date following the related Transfer
Date (any such date, a "Collateral Value Increase Date") that the Collateral
value of specified Mortgage Loans shall be 102% pursuant to clause (2)(A) of the
definition of Collateral

                                       31

<PAGE>

Value, the Trust may request that the Initial Noteholder advance Additional Note
Principal Balances equal to such increase in the Collateral Value of the related
Mortgage Loans and the Initial Noteholder may, in its sole discretion, make such
advance of Additional Note Principal Balances. Pursuant to and subject to the
Note Purchase Agreement, the Trust shall request that the Initial Noteholder
advance on each Funding Date Additional Note Principal Balances equal to the
Additional Note Balance to be purchased by the Trust on such date and the
Initial Noteholder shall remit on such Funding Date to the Funding Account an
amount equal to such Additional Note Principal Balance.

                  (ii) Notwithstanding anything to the contrary herein, in no
event shall the Initial Noteholder be required to advance Additional Note
Principal Balances on a Transfer Date or Collateral Value Increase Date if the
conditions precedent with respect to such Transfer Date or Collateral Value Date
under Section 2.06(a) and the conditions precedent to the purchase of Additional
Note Principal Balances set forth in Section 3.01 of the Note Purchase Agreement
have not been fulfilled. Notwithstanding anything to the contrary herein, in no
event shall the Initial Noteholder be required to advance Additional Note
Principal Balances on a Funding Date if the conditions precedent with respect to
such Funding Date under Section 2.06(b), the conditions precedent to the
purchase of Additional Note Principal Balances set forth in Section 3.02 of the
Note Purchase Agreement and the conditions precedent to the purchase of
Additional Principal Balances set forth in Section 3.01 of the Advance Note
Purchase Agreement have not been fulfilled.

                  (iii) The Servicer shall appropriately note such Additional
Note Principal Balance (and the increased Note Principal Balance) in the next
succeeding Payment Statement; provided, however, that failure to make any such
notation in such Payment Statement or any error in such notation shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest and principal payments in respect of
the Note Principal Balance held by such Noteholder. The Initial Noteholder shall
record on the schedule attached to such Noteholder's Note, the date and amount
of any Additional Note Principal Balance advanced by it; provided, that failure
to make such recordation on such schedule or any error in such schedule shall
not adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest payments in respect of the Note
Principal Balance held by such Noteholder.

                  (iv) Absent manifest error, the Note Principal Balance of each
Note as set forth in the Initial Noteholder's records shall be binding upon the
Noteholders and the Trust, notwithstanding any notation made by the Servicer in
its Payment Statement pursuant to the preceding paragraph.

      Section 2.02 Ownership and Possession of Loan Files.

      With respect to each Loan, as of the related Transfer Date the ownership
of the related Promissory Note, the related Mortgage and the contents of the
related Servicer's Loan File and Custodial Loan File shall be vested in the
Trust for the benefit of the Securityholders, although possession of the
Servicer's Loan File on behalf of and for the benefit of the Securityholders
shall remain with the Servicer, and the Custodian shall take possession of the
Custodial Loan Files as contemplated in Section 2.05 hereof.

                                       32

<PAGE>

      Section 2.03 Books and Records; Intention of the Parties.

            (a) As of each Transfer Date, the sale of each of the Loans and
Residual Securities conveyed by the Depositor on such Transfer Date shall be
reflected on the balance sheets and other financial statements of the Depositor
and the Loan Originator, as the case may be, as a sale of assets and a
contribution to capital by the Loan Originator and the Depositor, as applicable,
under GAAP. Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Loan and Residual Security which shall be clearly marked to reflect the
ownership of each Loan or Residual Security, as of the related Transfer Date, by
the Issuer and for the benefit of the Securityholders.

            (b) It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments of the Trust Estate on the initial Closing Date, on each Transfer
Date and as otherwise contemplated by the Basic Documents and the Assignments
shall constitute a sale of the Loans, Residual Securities and all related
property from the Depositor to the Issuer and such property shall not be
property of the Depositor. It is the intention of the parties hereto that, other
than for federal, state and local income or franchise tax purposes, the
transfers and assignments on each Funding Date shall constitute a sale of the
Advance Note, the related Additional Note Balances and all related property from
the Advance Trust to the Issuer and such property shall not be property of the
Advance Depositor or the Receivables Seller. The parties hereto shall treat the
Notes as indebtedness for federal, state and local income and franchise tax
purposes.

            (c) If any of the assignments and transfers of the Loans or the
Residual Securities and the other property of the Trust Estate specified in
Section 2.01(a) hereof to the Issuer pursuant to this Agreement or the
conveyance of the Loans or the Residual Securities or any of such other property
of the Trust Estate to the Issuer, other than for federal, state and local
income or franchise tax purposes, is held or deemed not to be a sale or is held
or deemed to be a pledge of security for a loan, the Depositor intends that the
rights and obligations of the parties shall be established pursuant to the terms
of this Agreement and that, in such event, with respect to such property, (i)
consisting of Loans or Residual Securities and related property, the Depositor
shall be deemed to have granted, as of the related Transfer Date, to the Issuer
a first priority security interest in the entire right, title and interest of
the Depositor in and to such Loans or Residual Securities and proceeds and all
other property conveyed to the Issuer as of such Transfer Date, (ii) consisting
of any other property specified in Section 2.01(a), the Depositor shall be
deemed to have granted, as of the initial Closing Date, to the Issuer a first
priority security interest in the entire right, title and interest of the
Depositor in and to such property and the proceeds thereof. In such event, with
respect to such property, this Agreement shall constitute a security agreement
under applicable law.

            (d) On the Closing Date, the Depositor shall, at such party's sole
expense, cause to be filed UCC-1 Financing Statements naming the Issuer as
"secured party" and describing the Trust Estate being sold by the Depositor to
the Issuer with the appropriate governmental filing office in the state in which
the Depositor is organized and any other jurisdictions as shall be necessary to
perfect a security interest in the Trust Estate. In addition, on the Closing
Date, the Loan Originator shall, at its expense, cause to be filed UCC-1
Financing Statements naming the Depositor as "secured party" and describing the
Loans being sold by the

                                       33

<PAGE>

Loan Originator to the Depositor with the appropriate governmental office in the
state in which the Loan Originator is organized and such other jurisdictions as
shall be necessary to perfect a security interest in the Trust Estate. In
addition, on the Closing Date, the Depositor shall, at its expense, cause to be
filed UCC-1 Financing Statements naming the Depositor as "secured party" and
describing the Loans being sold by the Loan Originator to the Depositor with the
appropriate governmental office in the state in which the Loan Originator is
organized and such other jurisdictions as shall be necessary to perfect a
security interest in the Trust Estate. On or before the initial Funding Date,
the Issuer shall, at its expense, cause to be filed UCC-1 Financing Statements
naming the Issuer as "secured party" and describing the Advance Note being sold
by the Advance Trust to the Issuer with the appropriate governmental office in
the state in which the Advance Trust is organized and such other jurisdictions
as shall be necessary to perfect a security interest in the Trust Estate. On or
before the initial Transfer Date with respect to Residual Securities, the Issuer
shall, at its expense, cause to be filed UCC-1 Financing Statements naming the
Issuer as "secured party" and describing each Residual Security being sold by
the Advance Trust to the Issuer with the appropriate governmental office in the
state of Delaware and such other jurisdictions as shall be necessary to perfect
a security interest in the Trust Estate.

      Section 2.04 Delivery of Loan Documents.

            (a) The Loan Originator shall, prior to the related Transfer Date
(or, in the case of each Wet Funded Loan, the related Wet Funded Custodial File
Delivery Date), in accordance with the terms and conditions set forth in the
Custodial Agreement, deliver or cause to be delivered to the Custodian, as the
designated agent of the Indenture Trustee, a Loan Schedule and each of the
documents constituting the Custodial Loan File with respect to each Loan. The
Loan Originator shall assure that (i) in the event that any Wet Funded Loan is
not closed and funded to the order of the appropriate Borrower on the day funds
are provided to the Loan Originator by the Initial Noteholder on behalf of the
Issuer, such funds shall be promptly returned to the Initial Noteholder on
behalf of the Issuer and (ii) in the event that any Wet Funded Loan is subject
to a recission, all funds received in connection with such recission shall be
promptly returned to the Initial Noteholder on behalf of the Issuer. With
respect to each Residual Security, the Loan Originator shall, prior to the
related Transfer Date, deliver or cause to be delivered to the Indenture trustee
a Residual Security Schedule and each of the related Loan Documents and shall
cause the Delivery of such Residual Security to the Indenture Trustee.

            (b) The Loan Originator shall, on the related Transfer Date (or in
the case of a Wet Funded Loan, on or before the related Wet Funded Custodial
File Delivery Date), deliver or cause to be delivered to the Servicer the
related Servicer's Loan File (i) for the benefit of, and as agent for, the
Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf of the
Noteholders, for so long as the Notes are outstanding; after the Notes are not
outstanding, the Servicer's Loan File shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Certificateholders.

            (c) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the State
of California (or upon prior written notice from the Custodian to the Loan
Originator and the Initial Noteholder and delivery of an Opinion of Counsel with
respect to the continued perfection of the Indenture

                                       34

<PAGE>

Trustee's security interest, in the State of Minnesota or Utah) and, in
connection therewith, shall act solely as agent for the Noteholders in
accordance with the terms hereof and not as agent for the Loan Originator, the
Servicer or any other party.

      Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain
Substitutions and Repurchases; Certification by the Custodian.

            (a) The Indenture Trustee declares that it will cause the Custodian
to hold the Custodial Loan Files and any additions, amendments, replacements or
supplements to the documents contained therein, as well as any other assets
included in the Trust Estate and delivered to the Custodian, in trust, upon and
subject to the conditions set forth herein. The Indenture Trustee further agrees
to cause the Custodian to execute and deliver such certifications as are
required under the Custodial Agreement and to otherwise direct the Custodian to
perform all of its obligations with respect to the Custodial Loan Files in
strict accordance with the terms of the Custodial Agreement.

            (b)   (i) With respect to any Loans which are set forth as
exceptions in the Exceptions Report, the Loan Originator shall cure such
exceptions by delivering such missing documents to the Custodian or otherwise
curing the defect no later than, in the case of (x) a non-Wet Funded Loan, 5
Business Days, or (y) in the case of a Wet Funded Loan one Business Day after
the Wet Funded Custodial File Delivery Date, in each case, following the receipt
of the first Exceptions Report listing such exception with respect to such Loan.

                  (ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
Section 2.05 and such failure has a material adverse effect on the value or
enforceability of any Loan or the interests of the Securityholders in any Loan,
the Loan Originator shall repurchase such Loan within one Business Day of notice
thereof from the Indenture Trustee or the Initial Noteholder at the Repurchase
Price thereof with respect to such Loan by depositing such Repurchase Price in
the Collection Account. In lieu of such a repurchase, the Depositor and Loan
Originator may comply with the substitution provisions of Section 3.06 hereof.
The Loan Originator shall provide the Servicer, the Indenture Trustee, the
Issuer and the Initial Noteholder with a certification of a Responsible Officer
on or prior to such repurchase or substitution indicating that the Loan
Originator intends to repurchase or substitute such Loan.

                  (iii) It is understood and agreed that the obligation of the
Loan Originator to repurchase or substitute any such Loan pursuant to this
Section 2.05(b) shall constitute the sole remedy with respect to such failure to
comply with the foregoing delivery requirements.

            (c) In performing its reviews of the Custodial Loan Files pursuant
to the Custodial Agreement, the Custodian shall have no responsibility to
determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction.

                                       35

<PAGE>

            (d) The Servicer's Loan File shall be held in the custody of the
Servicer (i) for the benefit of, and as agent for, the Noteholders and (ii) for
the benefit of the Indenture Trustee, on behalf of the Noteholders, for so long
as the Notes are outstanding; after the Notes are not outstanding, the
Servicer's Loan File shall be held in the custody of the Servicer for the
benefit of, and as agent for, the Certificateholders. It is intended that, by
the Servicer's agreement pursuant to this Section 2.05(d), the Indenture Trustee
shall be deemed to have possession of the Servicer's Loan Files for purposes of
Section 9-305 of the UCC of the state in which such documents or instruments are
located. The Servicer shall promptly report to the Indenture Trustee any failure
by it to hold the Servicer's Loan File as herein provided and shall promptly
take appropriate action to remedy any such failure. In acting as custodian of
such documents and instruments, the Servicer agrees not to assert any legal or
beneficial ownership interest in the Loans or such documents or instruments.
Subject to Section 8.01(d), the Servicer agrees to indemnify the Securityholders
and the Indenture Trustee, their officers, directors, employees, agents and
"control persons" as such term is used under the Act and under the Securities
Exchange Act of 1934, as amended for any and all liabilities, obligations,
losses, damages, payments, costs or expenses of any kind whatsoever which may be
imposed on, incurred by or asserted against the Securityholders or the Indenture
Trustee as the result of the negligence or willful misfeasance by the Servicer
relating to the maintenance and custody of such documents or instruments which
have been delivered to the Servicer; provided, however, that the Servicer will
not be liable for any portion of any such amount resulting from the negligence
or willful misconduct of any Securityholders or the Indenture Trustee; and
provided, further, that the Servicer will not be liable for any portion of any
such amount resulting from the Servicer's compliance with any instructions or
directions consistent with this Agreement issued to the Servicer by the
Indenture Trustee or the Majority Noteholders. The Indenture Trustee shall have
no duty to monitor or otherwise oversee the Servicer's performance as custodian
of the Servicer Loan File hereunder.

      Section 2.06 Conditions Precedent to Transfer Dates, Funding Dates and
Collateral Value Increase Dates.

            (a) Two (2) Business Days prior to each Transfer Date, the Issuer
shall give notice to the Initial Noteholder of such upcoming Transfer Date and
provide an estimate of the number of Loans and Residual Securities and the
aggregate Principal Balance of such Loans and the aggregate Principal Balance of
such Residual Securities to be transferred on such Transfer Date. On the
Business Day prior to each Transfer Date, the Issuer shall provide the Initial
Noteholder a final Loan Schedule with respect to the Loans to be transferred on
such Transfer Date and a final Residual Securities Schedule with respect to the
Residual Securities to be transferred on such Transfer Date. On each Transfer
Date, the Depositor or the applicable QSPE Affiliate shall convey to the Issuer,
the Loans, Residual Securities and the other property and rights related thereto
described in the related S&SA Assignment, and the Issuer, only upon the
satisfaction of each of the conditions set forth below on or prior to such
Transfer Date, shall deposit or cause to be deposited cash in the amount of the
Additional Note Principal Balance received from the Initial Noteholder in the
Advance Account in respect thereof, and the Servicer shall, promptly after such
deposit, withdraw the amount deposited in respect of applicable Additional Note
Principal Balance from the Advance Account, and distribute such amount to or at
the direction of the Depositor or the applicable QSPE Affiliate.

                                       36

<PAGE>

         As of the Closing Date, each Transfer Date and, as applicable, each
Collateral Value Increase Date:

                  (i) the Depositor, the QSPE Affiliate and the Servicer, as
applicable, shall have delivered to the Issuer and the Initial Noteholder duly
executed Assignments, which shall have attached thereto a Loan Schedule and
Residual Securities Schedule, as applicable, setting forth the appropriate
information with respect to all Loans and Residual Securities conveyed on such
Transfer Date and shall have delivered to the Initial Noteholder a computer
readable transmission of such Loan Schedule and/or Residual Securities Schedule;

                  (ii) the Depositor shall have deposited, or caused to be
deposited, in the Collection Account all collections received with respect to
each of the Loans and Residual Securities on and after the applicable Transfer
Cut-off Date or, in the case of purchases from a QSPE Affiliate, such QSPE
Affiliate shall have deposited, or caused to be deposited, in the Collection
Account all collections received with respect to each of the Loans and allocable
to the period after the related Transfer Date;

                  (iii) as of such Transfer Date or Collateral Value Increase
Date, neither the Loan Originator, the Depositor or the QSPE Affiliate, as
applicable, shall (A) be insolvent, (B) be made insolvent by its respective sale
of Loans or Residual Securities or (C) have reason to believe that its
insolvency is imminent;

                  (iv) the Revolving Period shall not have terminated;

                  (v) as of such Transfer Date or Collateral Value Increase Date
(after giving effect to the sale of Loans on such Transfer Date), there shall be
no Overcollateralization Shortfall;

                  (vi) in the case of non-Wet Funded Loans, the Issuer shall
have delivered the Custodial Loan File to the Custodian in accordance with the
Custodial Agreement and the Initial Noteholder shall have received a copy of the
Trust Receipt and Exceptions Report reflecting such delivery;

                  (vii) each of the representations and warranties made by the
Loan Originator contained in Exhibit E with respect to the Loans and Section 3
of the Residual Securities Transfer Agreement with respect to the Residual
Securities shall be true and correct in all material respects as of the related
Transfer Date with the same effect as if then made and the proviso set forth in
Section 3.05 with respect to Loans sold by a QSPE Affiliate shall not be
applicable to any Loans, and the Depositor or the QSPE Affiliate, as applicable,
shall have performed all obligations to be performed by it under the Basic
Documents on or prior to such Transfer Date or Collateral Value Increase Date;

                  (viii) the Depositor or the QSPE Affiliate shall, at its own
expense, within one Business Day following the Transfer Date, indicate in its
computer files that the Loans and Residual Securities identified in each S&SA
Assignment have been sold to the Issuer pursuant to this Agreement and the S&SA
Assignment;

                                       37

<PAGE>

                  (ix) the Depositor or the QSPE Affiliate shall have taken any
action requested by the Indenture Trustee, the Issuer or the Noteholders
required to maintain the ownership interest of the Issuer in the Trust Estate;

                  (x) no selection procedures believed by the Depositor or the
QSPE Affiliate to be adverse to the interests of the Noteholders shall have been
utilized in selecting the Loans or the Residual Securities to be conveyed on
such Transfer Date;

                  (xi) the Depositor shall have provided the Issuer, the
Indenture Trustee and the Initial Noteholder no later than two Business Days
prior to such date a notice of Additional Note Principal Balance in the form of
Exhibit A hereto;

                  (xii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance will not exceed the
Maximum Note Principal Balance;

                  (xiii) all conditions precedent to the Depositor's purchase of
Loans and the Residual Securities pursuant to the Loan Purchase and Contribution
Agreement and the Residual Securities Transfer Agreement shall have been
fulfilled as of such Transfer Date and, in the case of purchases from a QSPE
Affiliate, all conditions precedent to the Issuer's purchase of Loans pursuant
to the Master Disposition Confirmation Agreement shall have been fulfilled as of
such Transfer Date;

                  (xiv) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note Purchase Agreement shall
have been fulfilled as of such Transfer Date or Collateral Value Increase Date;

                  (xv) with respect to each Loan acquired from any QSPE
Affiliate that has a limited right of recourse to the Loan Originator under the
terms of the applicable loan purchase agreement, the Loan Originator has not
been required to pay any amount to or on behalf of such QSPE Affiliate that
lowered the recourse to the Loan Originator available to such QSPE Affiliate
below the maximum recourse to the Loan Originator available to such QSPE
Affiliate under the terms of the related loan purchase contract providing for
recourse by that QSPE Affiliate to the Loan Originator; and

                  (xvi) with respect to each Wet Funded Loan, the Guaranty shall
be in full force and effect.

      (b) Two (2) Business Days prior to each Funding Date, the Issuer shall
deliver or cause to be delivered to the Initial Noteholder the Funding Notice
and Funding Date Report delivered by the Receivables Seller pursuant to the
Receivables Purchase Agreement. On each Funding Date, the Issuer shall purchase
the Additional Note Balance issued by the Advance Trust on such Funding Date,
and the Issuer, only upon the satisfaction of each of the conditions set forth
below on or prior to such Funding Date, shall cause the Initial Noteholder to
deposit the applicable Additional Note Principal Balance into the Funding
Account.

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<PAGE>

      As of the each Funding Date:

                  (xvii) the Receivables Seller and the Advance Depositor, shall
have delivered to the Issuer the related Funding Notice and Bill of Sale, and
the exhibits related thereto, pursuant to the Receivables Purchase Agreement;

                  (xviii) neither the Loan Originator nor the Depositor shall
(A) be insolvent or (B) have reason to believe that its insolvency is imminent;

                  (xix) the Revolving Period shall not have terminated;

                  (xx) after giving effect to the purchase of Additional Note
Balance on such Funding Date, there shall be no Overcollateralization Shortfall;

                  (xxi) the Issuer shall have taken any action requested by the
Indenture Trustee or the Noteholders required to maintain the ownership interest
of the Issuer in the Trust Estate;

                  (xxii) the Issuer shall have provided the Indenture Trustee
and the Initial Noteholder no later than two Business Days prior to such date a
notice of Additional Note Principal Balance in the form of Exhibit A hereto;

                  (xxiii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance will not exceed the
Maximum Note Principal Balance;

                  (xxiv) all conditions precedent to the Issuer's purchase of
Additional Note Balance pursuant to the Advance Note Purchase Agreement shall
have been fulfilled as of such Funding Date; and

                  (xxv) all conditions precedent to the Noteholders' purchase of
Additional Note Balance pursuant to the Note Purchase Agreement shall have been
fulfilled as of such Funding Date.

      Section 2.07 Termination of Revolving Period.

      Upon the occurrence of (i) an Event of Default or Default or (ii) a Rapid
Amortization Trigger or (iii) the Unfunded Transfer Obligation Percentage equals
4.0% or less or (iv) Option One or any of its Affiliates shall default under, or
fail to perform as requested under, or shall otherwise materially breach the
terms of any repurchase agreement, loan and security agreement or similar credit
facility or agreement entered into by Option One or any of its Affiliates,
including the 2001-1A Sale and Servicing Agreement and the Sale and Servicing
Agreement, dated as of April 1, 2001, as amended and restated through and
including November 25, 2003, among the Option One Owner Trust 2001-2, the
Depositor, Option One and the Indenture Trustee, and such default, failure or
breach shall entitle any counterparty to declare the Indebtedness thereunder to
be due and payable prior to the maturity thereof, the Initial Noteholder may, in
any such case, in its sole discretion, terminate the Revolving Period.

                                       39

<PAGE>

      Section 2.08 Correction of Errors.

      The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price from and after the Closing
Date. In the event that an error in the Sales Price is discovered by either
party, including without limitation, any error due to miscalculations of Market
Value where insufficient information has been provided with respect to a Loan or
Residual Security to make an accurate determination of Market Value as of any
applicable Transfer Date, any miscalculations of Principal Balance, accrued
interest, Overcollateralization Shortfall or aggregate unreimbursed Servicing
Advances attributable to the applicable Loan or Residual Security, or any
prepayments not properly credited, such party shall give prompt notice to the
other parties hereto, and the party that shall have benefitted from such error
shall promptly remit to the other, by wire transfer of immediately available
funds, the amount of such error with no interest thereon.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Section 3.01 Representations and Warranties of the Depositor.

      The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:

            (a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization and
has, and had at all relevant times, full power to own its property, to carry on
its business as currently conducted, to enter into and perform its obligations
under each Basic Document to which it is a party;

            (b) The execution and delivery by the Depositor of each Basic
Document to which the Depositor is a party and its performance of and compliance
with all of the terms thereof will not violate the Depositor's organizational
documents or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;

            (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a party, has duly authorized the execution, delivery and
performance of each Basic Document to which it is a party and has duly executed
and delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by the
other party or parties thereto, constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
thereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

                                       40

<PAGE>

            (d) The Depositor is not in violation of, and the execution and
delivery by the Depositor of each Basic Document to which the Depositor is a
party and its performance and compliance with the terms of each Basic Document
to which the Depositor is a party will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or any of its properties or materially and adversely
affect the performance of any of its duties hereunder;

            (e) There are no actions or proceedings against, or investigations
of, the Depositor currently pending with regard to which the Depositor has
received service of process and no action or proceeding against, or
investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or other
tribunal that (A) if determined adversely to the Depositor, would prohibit its
entering into any of the Basic Documents to which it is a party or render the
Securities invalid, (B) seek to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by any of the Basic
Documents to which it is a party or (C) if determined adversely to the
Depositor, would reasonably be expected to prohibit or materially and adversely
affect the performance by the Depositor of its obligations under, or the
validity or enforceability of, any of the Basic Documents to which it is a party
or the Securities (it being understood that the satisfaction of the Financial
Covenants by the Loan Originator is not considered an obligation of the
Depositor);

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of the
Basic Documents to which the Depositor is a party or the Securities, or for the
consummation of the transactions contemplated by any of the Basic Documents to
which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;

            (g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of any of the Basic Documents to which it is a party or the assumption
of any of its obligations thereunder; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Depositor;

            (h) The Depositor did not transfer the Loans or Residual Securities
sold thereon by the Depositor to the Trust with any intent to hinder, delay or
defraud any of its creditors; nor will the Depositor be rendered insolvent as a
result of such sale;

            (i) The Depositor had good title to, and was the sole owner of, each
Loan and Residual Security sold thereon by the Depositor free and clear of any
lien other than any such lien released simultaneously with the sale contemplated
herein, and, immediately upon each transfer and assignment herein contemplated,
the Depositor will have delivered to the Trust good title to, and the Trust will
be the sole owner of, each Loan and Residual Security transferred by the
Depositor thereon free and clear of any lien;

                                       41

<PAGE>

            (j) The Depositor acquired title to each of the Loans and Residual
Securities sold thereon by the Depositor in good faith, without notice of any
adverse claim;

            (k) None of the Basic Documents to which the Depositor is a party,
nor any Officer's Certificate, statement, report or other document prepared by
the Depositor and furnished or to be furnished by it pursuant to any of the
Basic Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;

            (l) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended;

            (m) The transfer, assignment and conveyance of the Loans and the
Residual Securities by the Depositor thereon pursuant to this Agreement is not
subject to the bulk transfer laws or any similar statutory provisions in effect
in any applicable jurisdiction;

            (n) The Depositor's principal place of business and chief executive
offices are located at Irvine, California or at such other address as shall be
designated by such party in a written notice to the other parties hereto;

            (o) The Depositor covenants that during the continuance of this
Agreement it will comply in all respects with the provisions of its
organizational documents in effect from time to time; and

            (p) The representations and warranties set forth in (h), (i), (j)
and (m) above were true and correct (with respect to the applicable QSPE
Affiliate) with respect to each Loan transferred to the Trust by any QSPE
Affiliate at the time such Loan was transferred to a QSPE Affiliate.

      Section 3.02 Representations and Warranties of the Loan Originator.

      The Loan Originator hereby represents and warrants to the other parties
hereto and the Securityholders that as of the Closing Date and as of each
Transfer Date:

            (a) The Loan Originator is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Mortgaged Property related to a Loan
sold by it is located and (ii) is in compliance with the laws of any such
jurisdiction, in both cases, to the extent necessary to ensure the
enforceability of such Loans in accordance with the terms thereof and had at all
relevant times, full corporate power to originate such Loans, to own its
property, to carry on its business as currently conducted and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Loan Originator's articles of organization or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or

                                       42

<PAGE>

result in the breach or acceleration of, any contract, agreement or other
instrument to which the Loan Originator is a party or which may be applicable to
the Loan Originator or any of its assets;

            (c) The Loan Originator has the full power and authority to enter
into and consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of the Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

            (d) The Loan Originator is not in violation of, and the execution
and delivery of each Basic Document to which it is a party by the Loan
Originator and its performance and compliance with the terms of each Basic
Document to which it is a party will not constitute a violation with respect to,
any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which it is a
party;

            (e) There are no actions or proceedings against, or investigations
of, the Loan Originator currently pending with regard to which the Loan
Originator has received service of process and no action or proceeding against,
or investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Securities invalid, (B) seek to prevent the issuance of the
Securities or the consummation of any of the transactions contemplated by any
Basic Document to which it is a party or (C) if determined adversely to the Loan
Originator, would reasonably be expected to prohibit or materially and adversely
affect the sale of the Loans or Residual Securities to the Depositor, the
performance by the Loan Originator of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities,
provided, however, that for purposes of calculating whether the Loan Seller
satisfies the Financial Covenants, such action, proceeding or investigation
shall not be taken into account unless there is a reasonable possibility of an
adverse determination of such action, proceeding or investigation;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the issuance of the
Securities, (3) the sale and contribution of the Loans or the sale of the
Residual Securities, or (4) the consummation of the transactions required of it
by any Basic Document to which it is a party, except such as shall have been
obtained before such date;

                                       43

<PAGE>

            (g) Immediately prior to the sale of any Loan or Residual Security
to the Depositor, the Loan Originator had good title to such Loan or Residual
Security sold by it on such date without notice of any adverse claim;

            (h) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Loan Originator to the
Initial Noteholder in connection with the negotiation, preparation or delivery
of the Basic Documents to which it is a party or delivered pursuant thereto,
when taken as a whole, do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the Loan
Originator to the Initial Noteholder in connection with the Basic Documents to
which it is a party and the transactions contemplated thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified.

            (i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a party;
no petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Loan Originator prior to the date hereof;

            (j) The Loan Originator has transferred the Loans or Residual
Securities transferred by it on or prior to such Transfer Date without any
intent to hinder, delay or defraud any of its creditors;

            (k) The Loan Originator has received fair consideration and
reasonably equivalent value in exchange for the Loans and Residual Securities
sold by it on such Transfer Date to the Depositor;

            (l) The Loan Originator has not dealt with any broker or agent or
other Person who might be entitled to a fee, commission or compensation in
connection with the transaction contemplated by this Agreement;

            (m) The Loan Originator is in compliance with each of its financial
covenants set forth in Section 7.02; and

            (n) The Loan Originator's principal place of business and chief
executive offices are located at Irvine, California or at such other address as
shall be designated by such party in a written notice to the other parties
hereto.

      It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Custodial
Loan Files to the Custodian (as the agent of the Indenture Trustee) and shall
inure to the benefit of the Securityholders, the Depositor, the Servicer, the
Indenture Trustee, the Owner Trustee and the Issuer. Upon discovery by the Loan
Originator, the Depositor, the Servicer, the Indenture Trustee or the Trust of a
breach of any of the foregoing representations and warranties that materially
and adversely affects the value of

                                       44

<PAGE>

any Loan or Residual Security or the interests of the Securityholders in any
Loan or Residual Security or in the Securities, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The obligations of the Loan
Originator set forth in Sections 2.05 and 3.06 hereof to cure any breach or to
substitute for or repurchase an affected Loan or Residual Security shall
constitute the sole remedies available hereunder to the Securityholders, the
Depositor, the Servicer, the Indenture Trustee or the Trust respecting a breach
of the representations and warranties contained in this Section 3.02. The fact
that the Initial Noteholder has conducted or has failed to conduct any partial
or complete due diligence investigation of the Loan Files shall not affect the
Securityholders rights to demand repurchase or substitution as provided under
this Agreement.

      Section 3.03 Representations, Warranties and Covenants of the Servicer.

      The Servicer hereby represents and warrants to and covenants with the
other parties hereto and the Securityholders that as of the Closing Date and as
of each Transfer Date:

            (a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and (i) is duly
qualified, in good standing and licensed to carry on its business in each state
where any Mortgaged Property is located, and (ii) is in compliance with the laws
of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform
its duties under each Basic Document to which it is a party and had at all
relevant times, full corporate power to own its property, to carry on its
business as currently conducted, to service the Loans and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Servicer of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Servicer's articles of incorporation or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Servicer is a party or which are applicable to the Servicer or any of its
assets;

            (c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);

            (d) The Servicer is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Servicer and its
performance and compliance with the terms of each Basic Document to which it is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state,

                                       45

<PAGE>

municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or materially and adversely affect the performance of
its duties under any Basic Document to which it is a party;

            (e) There are no actions or proceedings against, or investigations
of, the Servicer currently pending with regard to which the Servicer has
received service of process and no action or proceeding against, or
investigation of, the Servicer is, to the knowledge of the Servicer, threatened
or otherwise pending before any court, administrative agency or other tribunal
that (A) if determined adversely to the Servicer, would prohibit its entering
into any Basic Document to which it is a party, (B) seek to prevent the
consummation of any of the transactions contemplated by any Basic Document to
which it is a party or (C) if determined adversely to the Servicer, would
reasonably be expected to prohibit or materially and adversely affect the
performance by the Servicer of its obligations under, or the validity or
enforceability of, any Basic Document to which it is a party or the Securities,
provided, however, that for the purpose of calculating whether the Servicer
satisfies the Financial Covenants, such action, proceeding or investigation
shall not be taken into account unless there is a reasonable possibility of an
adverse determination of such action, proceeding or investigation;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Securities, or for the consummation of
the transactions contemplated by any Basic Document to which it is a party,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;

            (g) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Servicer to the Initial
Noteholder in connection with the negotiation, preparation or delivery of the
Basic Documents to which it is a party or delivered pursuant thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to
the Initial Noteholder in connection with the Basic Documents to which it is a
party and the transactions contemplated thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified.

            (h) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to under the Basic
Documents to which it is a party;

            (i) The Servicer acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the entire Servicing Compensation shall be treated
by the Servicer, for accounting purposes, as compensation for the servicing and
administration of the Loans pursuant to this Agreement;

            (j) The Servicer is in compliance with each of its financial
covenants set forth in Section 7.02; and

                                       46

<PAGE>

            (k) The Servicer is an Eligible Servicer and covenants to remain an
Eligible Servicer or, if not an Eligible Servicer, each Subservicer is an
Eligible Servicer and the Servicer covenants to cause each Subservicer to be an
Eligible Servicer.

      It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Indenture Trustee or the Custodian on its
behalf and shall inure to the benefit of the Depositor, the Securityholders, the
Indenture Trustee and the Issuer. Upon discovery by the Loan Originator, the
Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or the Issuer
of a breach of any of the foregoing representations, warranties and covenants
that materially and adversely affects the value of any Loan or Residual Security
or the interests of the Securityholders therein or in the Securities, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties. The fact
that the Initial Noteholder has conducted or has failed to conduct any partial
or complete due diligence investigation shall not affect the Securityholders,
rights to exercise their remedies as provided under this Agreement.

      Section 3.04 Reserved.

      Section 3.05 Representations and Warranties Regarding Loans.

      The Loan Originator makes each of the representations and warranties set
forth on Exhibit E hereto with respect to each Loan and makes each
representation and warranty set forth in Section 3 of the Residual Securities
Transfer Agreement with respect to each Residual Security, provided, however,
that with respect to each Loan transferred to the Issuer by a QSPE Affiliate, to
the extent that the Loan Originator has at the time of such transfer actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator shall
notify the Initial Noteholder of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty.

      In addition, the Loan Originator represents and warrants with respect to
each Loan sold by a QSPE Affiliate that the Loan Originator has not been
required to pay any amount to or on behalf of such QSPE Affiliate that lowered
the recourse to the Loan Originator available to such QSPE Affiliate below the
maximum recourse to the Loan Originator available to such QSPE Affiliate under
the terms of any loan purchase agreement providing for recourse by that QSPE
Affiliate to the Loan Originator.

      Section 3.06 Purchase and Substitution.

            (a) It is understood and agreed that the representations and
warranties set forth in Exhibit E hereto and in Section 3 of the Residual
Securities Transfer Agreement shall survive the conveyance of the Loans or the
Residual Securities to the Indenture Trustee on behalf of the Issuer, and the
delivery of the Securities to the Securityholders. Upon discovery by the
Depositor, the Servicer, the Loan Originator, the Custodian, the Issuer, the
Indenture Trustee or any Securityholder of a breach of any of such
representations and warranties or the representations and warranties of the Loan
Originator set forth in Section 3.02 which materially

                                       47

<PAGE>

and adversely affects the value or enforceability of any Loan or Residual
Security or the interests of the Securityholders in any Loan or Residual
Security (notwithstanding that such representation and warranty was made to the
Loan Originator's best knowledge) or which, as a result of the attributes of the
aggregate Loan Pool or Residual Securities Pool, constitutes a breach of the
representations and warranties set forth in Exhibit E or in Section 3 of the
Residual Securities Transfer Agreement, the party discovering such breach shall
give prompt written notice to the others. The Loan Originator shall within 5
Business Days of the earlier of the Loan Originator's discovery or the Loan
Originator's receiving notice of any breach of a representation or warranty,
promptly cure such breach in all material respects. If within 5 Business Days
after the earlier of the Loan Originator's discovery of such breach or the Loan
Originator's receiving notice thereof such breach has not been remedied by the
Loan Originator and such breach materially and adversely affects the interests
of the Securityholders in the related Loan (an "Unqualified Loan") or related
Residual Security (an "Unqualified Residual Security"), the Loan Originator
shall promptly upon receipt of written instructions from the Majority
Noteholders either (i) remove such Unqualified Loan (in which case it shall
become a Deleted Loan) or Unqualified Residual Security (in which case it shall
become a Deleted Residual Security) from the Trust and substitute one or more
Qualified Substitute Loans (in place of a Deleted Loan) or Qualified Residual
Securities (in place of a Deleted Residual Security) in the manner and subject
to the conditions set forth in this Section 3.06 or (ii) purchase such
Unqualified Loan or Unqualified Residual Security at a purchase price equal to
the Repurchase Price with respect to such Unqualified Loan or Unqualified
Residual Security by depositing or causing to be deposited such Repurchase Price
in the Collection Account.

      Any substitution of Loans or Residual Securities pursuant to this Section
3.06(a) shall be accompanied by payment by the Loan Originator of the
Substitution Adjustment, if any, (x) if no Overcollateralization Shortfall
exists on the date of such substitution (after giving effect to such
substitution), remitted to the Noteholders in accordance with Section
5.01(c)(4)(i) or (y) otherwise to be deposited in the Collection Account
pursuant to Section 5.01(b)(1) hereof.

            (b) As to any Deleted Loan or Deleted Residual Security for which
the Loan Originator substitutes a Qualified Substitute Loan or Loans or
Qualified Substitute Residual Security or Residual Securities, the Loan
Originator shall effect such substitution by delivering to the Indenture Trustee
and Initial Noteholder a certification executed by a Responsible Officer of the
Loan Originator to the effect that the Substitution Adjustment, if any, has been
(x) if no Overcollateralization Shortfall exists on the date of such
substitution (after giving effect to such substitution), remitted to the
Noteholders in accordance with Section 5.01(c)(4)(i), or (y) otherwise deposited
in the Collection Account. As to any Deleted Loan for which the Loan Originator
substitutes a Qualified Substitute Loan or Loans, the Loan Originator shall
effect such substitution by delivering to the Custodian the documents
constituting the Custodial Loan File for such Qualified Substitute Loan or
Loans. As to any Deleted Residual Security for which the Loan Originator
substitutes a Qualified Substitute Residual Security or Residual Securities, the
Loan Originator shall effect such substitution by delivering to the Trustee the
Loan Documents for such Qualified Substitute Residual Security or Residual
Securities.

      The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan or Qualified Substitute
Residual Security after the date of such substitution. Monthly Payments received
with respect to Qualified Substitute Loans or

                                       48

<PAGE>

Qualified Substitute Residual Securities on or before the date of substitution
will be retained by the Loan Originator. The Trust will be entitled to all
payments received on the Deleted Loan or Deleted Residual Security on or before
the date of substitution and the Loan Originator shall thereafter be entitled to
retain all amounts subsequently received in respect of such Deleted Loan or
Residual Security. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and Initial Noteholder that such substitution has taken place and the
Servicer shall amend the Loan Schedule or Residual Security Schedule, as
applicable, to reflect (i) the removal of such Deleted Loan or Deleted Residual
Security from the terms of this Agreement and (ii) the substitution of the
Qualified Substitute Loan or Qualified Substitute Residual Security. The
Servicer shall promptly deliver to the Issuer, the Loan Originator, the
Indenture Trustee and Initial Noteholder, a copy of the amended Loan Schedule
and/or a copy of the amended Residual Security Schedule. Upon such substitution,
such Qualified Substitute Loan or Loans or Qualified Substitute Residual
Security or Residual Securities shall be subject to the terms of this Agreement
in all respects, and the Loan Originator shall be deemed to have made with
respect to such Qualified Substitute Loan or Loans, as of the date of
substitution, the covenants, representations and warranties set forth in Exhibit
E hereto and with respect to such or Qualified Substitute Residual Security or
Residual Securities, the covenants, representations and warranties set forth in
the Residual Securities Transfer Agreement. On the date of such substitution,
the Loan Originator will (x) if no Overcollateralization Shortfall exists as of
the date of substitution (after giving effect to such substitution), remit to
the Noteholders as provided in Section 5.01(c)(4)(i) or (y) otherwise deposit
into the Collection Account, in each case an amount equal to the related
Substitution Adjustment, if any. In addition, on the date of such substitution,
the Servicer shall cause the Indenture Trustee to release the Deleted Loan or
Deleted Residual Securities from the lien of the Indenture and the Servicer will
cause such Qualified Substitute Loan or Qualified Substitute Residual Securities
to be pledged to the Indenture Trustee under the Indenture as part of the Trust
Estate.

            (c) With respect to all Unqualified Loans, Unqualified Residual
Securities or other Loans or Residual Securities repurchased by the Loan
Originator pursuant to this Agreement, upon the deposit of the Repurchase Price
therefor into the Collection Account, (i) the Issuer shall assign to the Loan
Originator, without representation or warranty, all of the Issuer's right, title
and interest in and to such Unqualified Loan or Unqualified Residual Security,
which right, title and interest were conveyed to the Issuer pursuant to Section
2.01 hereof and (ii) the Indenture Trustee shall assign to the Loan Originator,
without recourse, representation or warranty, all the Indenture Trustee's right,
title and interest in and to such Unqualified Loans or Loans or Unqualified
Residual Security or Residual Securities, which right, title and interest were
conveyed to the Indenture Trustee pursuant to Section 2.01 hereof and the
Indenture. The Issuer and the Indenture Trustee shall, at the expense of the
Loan Originator, take any actions as shall be reasonably requested by the Loan
Originator to effect the repurchase of any such Loans or Residual Securities and
to have the Custodian return the Custodial Loan File of the deleted Loan to the
Servicer or to have the Trustee return the Loan Documents of the Deleted
Residual Security to the Servicer.

            (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.06 to cure, purchase or substitute for a
Unqualified Loan or Unqualified

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<PAGE>

Residual Security constitute the sole remedies hereunder of the Depositor, the
Issuer, the Indenture Trustee, the Owner Trustee and the Securityholders
respecting a breach of the representations and warranties contained in Sections
3.02 hereof and in Exhibit E hereto and the Residual Security Transfer
Agreement. Any cause of action against the Loan Originator relating to or
arising out of a defect in a Custodial Loan File or the Loan Documents (with
respect to a Residual Security) or against the Loan Originator relating to or
arising out of a breach of any representations and warranties made in Sections
3.02 hereof and in Exhibit E hereto or the Residual Security Transfer Agreement
shall accrue as to any Loan or Residual Security upon (i) discovery of such
defect or breach by any party and notice thereof to the Loan Originator or
notice thereof by the Loan Originator to the Indenture Trustee, (ii) failure by
the Loan Originator to cure such defect or breach or purchase or substitute such
Loan or Residual Security as specified above, and (iii) demand upon the Loan
Originator, as applicable, by the Issuer or the Majority Noteholders for all
amounts payable in respect of such Loan or Residual Security.

            (e) Neither the Issuer nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Loan or Residual Security pursuant to this Section or the
eligibility of any Loan for purposes of this Agreement.

      Section 3.07 Dispositions.

            (a) The Majority Noteholders may at any time, and from time to time,
require that the Issuer redeem all or any portion of the Note Principal Balance
of the Notes by paying the Note Redemption Amount with respect to the Note
Principal Balance to be redeemed. In connection with any such redemption, the
Issuer shall effect Dispositions at the direction of the Majority Noteholders in
accordance with this Agreement, including in accordance with this Section 3.07.

            (b)   (i) In consideration of the consideration received from the
Depositor under the Loan Purchase and Contribution Agreement and the Residual
Securities Transfer Agreement, the Loan Originator hereby agrees and covenants
that in connection with each Disposition it shall effect the following:

                  (A) make such representations and warranties concerning the
Loans as of the "cut-off date" of the related Disposition to the Disposition
Participants as may be necessary to effect the Disposition and such additional
representations and warranties as may be necessary, in the reasonable opinion of
any of the Disposition Participants, to effect such Disposition; provided, that,
to the extent that the Loan Originator has at the time of the Disposition actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator may notify
the Disposition Participants of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty;

                  (B) supply such information, opinions of counsel, letters from
law and/or accounting firms and other documentation and certificates regarding
the origination of the Loans or the issuance of the Residual Securities as any
Disposition Participant shall reasonably request to effect a Disposition and
enter into such indemnification agreements customary for such

                                       50

<PAGE>

transaction relating to or in connection with the Disposition as the Disposition
Participants may reasonably require;

                  (C) make itself available for and engage in good faith
consultation with the Disposition Participants concerning information to be
contained in any document, agreement, private placement memorandum, or filing
with the Securities and Exchange Commission relating to the Loan Originator, the
Loans or the Residual Securities in connection with a Disposition and shall use
reasonable efforts to compile any information and prepare any reports and
certificates, into a form, whether written or electronic, suitable for inclusion
in such documentation;

                  (D) to implement the foregoing and to otherwise effect a
Disposition, enter into, or arrange for its Affiliates to enter into insurance
and indemnity agreements, underwriting or placement agreements, servicing
agreements, purchase agreements and any other documentation which may reasonably
be required of or reasonably deemed appropriate by the Disposition Participants
in order to effect a Disposition; and

                  (E) take such further actions as may be reasonably necessary
to effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan Originator
shall have no liability for the Loans or the Residual Securities arising from or
relating to the ongoing ability of the related Borrowers to pay under the Loans
or under the loans underlying the Residual Securities; (b) none of the
indemnities hereunder shall constitute an unconditional guarantee by the Loan
Originator of collectibility of the Loans or the Residual Securities; (c) the
Loan Originator shall have no obligation with respect to the financial inability
of any Borrower to pay principal, interest or other amount owing by such
Borrower under a Loan or under a loan underlying a Residual Security; and (d)
the Loan Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that to the
extent an Affiliate of the Initial Noteholder acts as "depositor" or performs a
similar function in a Securitization, additional indemnities and informational
representations and warranties are provided which are consistent with those in
the Basic Documents and may upon request of the Loan Originator be set forth in
a separate agreement between an Affiliate of the Initial Noteholder and the Loan
Originator.

                  (ii) In the event of any Disposition to the Loan Originator or
any of its Affiliates (except in connection with a Securitization or a
Disposition to a QSPE Affiliate), the purchase price paid by the Loan Originator
or any such Affiliate shall be the "fair market value" of the Loans or the
Residual Securities subject to such Disposition (as determined by the Market
Value Agent based upon recent sales of comparable loans or securities or such
other objective criteria as may be approved for determining "fair market value"
by a "Big Five" national accounting firm).

                  (iii) As long as no Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the Servicer
may continue to service the Loans included in any Disposition subject to any
applicable "term-to-term" servicing provisions in Section 9.01(c) and subject to
any required amendments to the related servicing provisions as

                                       51

<PAGE>

may be necessary to effect the related Disposition including but not limited to
the obligation to make recoverable principal and interest advances on the Loans.

            After the termination of the Revolving Period, the Loan Originator,
the Issuer and the Depositor shall use commercially reasonable efforts to effect
a Disposition at the direction of the Disposition Agent.

            (c) The Issuer shall effect Dispositions at the direction of the
Majority Noteholders in accordance with the terms of this Agreement and the
Basic Documents. In connection therewith, the Trust agrees to assist the Loan
Originator in such Dispositions and accordingly it shall, at the request and
direction of the Majority Noteholders:

                  (i) transfer, deliver and sell all or a portion of the Loans
or Residual Securities, as of the "cut-off dates" of the related Dispositions,
to such Disposition Participants as may be necessary to effect the Dispositions;
provided, that any such sale shall be for "fair market value," as determined by
the Market Value Agent in its reasonable discretion;

                  (ii) deposit the cash Disposition Proceeds into the
Distribution Account pursuant to Section 5.01(c)(2)(D);

                  (iii) to the extent that a Securitization creates any Retained
Securities, to accept such Retained Securities as a part of the Disposition
Proceeds in accordance with the terms of this Agreement; and

                  (iv) take such further actions, including executing and
delivering documents, certificates and agreements, as may be reasonably
necessary to effect such Dispositions.

            (d) The Servicer hereby covenants that it will take such actions as
may be reasonably necessary to effect Dispositions as the Disposition
Participants may request and direct, including without limitation providing the
Loan Originator such information as may be required to make representations and
warranties required hereunder, and covenants that it will make such
representations and warranties regarding its servicing of the Loans hereunder as
of the Cut-off Date of the related Disposition as reasonably required by the
Disposition Participants.

            (e) [reserved]

            (f) The Majority Noteholders may effect Whole Loan Sales upon
written notice to the Servicer of its intent to cause the Issuer to effect a
Whole Loan Sale at least 5 Business Days in advance thereof. The Disposition
Agent shall serve as agent for Whole Loan Sales and will receive a reasonable
fee for such services provided that no such fee shall be payable if (i) the Loan
Originator or its Affiliates purchase such Loans and (ii) no Event of Default or
Default shall have occurred. The Loan Originator or its Affiliates may
concurrently bid to purchase Loans in a Whole Loan Sale; provided, however, that
neither the Loan Originator nor any such Affiliates shall pay a price in excess
of the fair market value thereof (as determined by the Market Value Agent based
upon recent sales of comparable loans or such other objective criteria as may be
approved for determining "fair market value" by a "Big Five" national accounting
firm). In the event that the Loan Originator does not bid in any such Whole Loan

                                       52

<PAGE>

Sale, it shall have a right of first refusal to purchase the Loans offered for
sale at the price offered by the highest bidder. The Disposition Agent shall
conduct any Whole Loan Sale subject to the Loan Originator's right of first
refusal and shall promptly notify the Loan Originator of the amount of the
highest bid. The Loan Originator shall have five (5) Business Days following its
receipt of such notice to exercise its right of first refusal by notifying the
Disposition Agent in writing.

            (g) Except as otherwise expressly set forth under this Section 3.07,
the parties' rights and obligations under this Section 3.07 shall continue
notwithstanding the occurrence of an Event of Default.

            (h) The Disposition Participants (and the Majority Noteholders to
the extent directing the Disposition Participants) shall be independent
contractors to the Issuer and shall have no fiduciary obligations to the Issuer
or any of its Affiliates. In that connection, the Disposition Participants shall
not be liable for any error of judgment made in good faith and shall not be
liable with respect to any action they take or omits to take in good faith in
the performance of their duties.

      Section 3.08 Servicer Put; Servicer Call.

            (a) Servicer Put. The Servicer shall promptly purchase, upon the
written demand of the Majority Noteholders, any Put/Call Loan; provided,
however, that the Servicer may, upon receipt of such demand, elect to repurchase
such Put/Call Loan pursuant to (b) below, in which case such repurchase shall be
deemed a Servicer Call.

            (b) Servicer Call. The Servicer may repurchase any Put/Call Loan at
any time. Such Servicer Calls shall be solely at the option of the Servicer.
Prior to exercising a Servicer Call, the Servicer shall deliver written notice
to the Majority Noteholders and the Indenture Trustee which notice shall
identify each Loan to be purchased and the Repurchase Price therefor; provided,
however, that the Servicer may irrevocably waive its right to repurchase any
Put/Call Loan as soon as reasonably practicable following its receipt of notice
of the occurrence of any event or events giving rise to such Loan being a
Put/Call Loan.

            (c) In connection with each Servicer Put, the Servicer shall remit
for deposit into the Collection Account the Repurchase Price for the Loans to be
repurchased. In connection with each Servicer Call, the Servicer shall deposit
into the Collection Account the Repurchase Price for the Loans to be purchased.
The aggregate Repurchase Price of all Loans transferred pursuant to Section
3.08(a) shall in no event exceed the Unfunded Transfer Obligation at the time of
any Servicer Put.

      Section 3.09 Modification of Underwriting Guidelines.

      The Loan Originator shall give the Initial Noteholder prompt written
notification of any modification or change to the Underwriting Guidelines. If
the Noteholder objects in writing to any modification or change to the
Underwriting Guidelines within 15 days after receipt of such notice, no Loans
may be conveyed to the Issuer pursuant to this Agreement unless such Loans have
been originated pursuant to the Underwriting Guidelines without giving effect to
such modification or change. Notwithstanding anything contained in this
Agreement to the contrary,

                                       53
<PAGE>

any Loan conveyed to the Issuer pursuant to this Agreement pursuant to a
modification or change to the Underwriting Guidelines that has been rejected by
the Initial Noteholder or which the Initial Noteholder did not receive notice
of, such Loan shall be deemed an Unqualified Loan and be repurchased or
substituted for in accordance with Section 3.06.

                                   ARTICLE IV

                    ADMINISTRATION AND SERVICING OF THE LOANS

      Section 4.01 Servicer's Servicing Obligations.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with the terms and provisions set forth in
the Servicing Addendum, which Servicing Addendum is incorporated herein by
reference.

                                   ARTICLE V

              ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

      Section 5.01 Collection Account and Distribution Account.

            (a) (1) Establishment of Collection Account. The Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained one or
more Collection Accounts (collectively, the "Collection Account"), which shall
be separate Eligible Accounts entitled "Option One Owner Trust 2001-1B
Collection Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the
benefit of the Option One Owner Trust 2001-1B Mortgage-Backed Notes." The
Collection Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Collection Account shall be invested in accordance with Section 5.03
hereof. Net investment earnings shall not be considered part of funds available
in the Collection Account.

                  (2) Establishment of Distribution Account. The Servicer, for
the benefit of the Noteholders, shall cause to be established and maintained,
one or more Distribution Accounts (collectively, the "Distribution Account"),
which shall be separate Eligible Accounts, entitled "Option One Owner Trust
2001-1B Distribution Account, Wells Fargo Bank, N.A., as Indenture Trustee, for
the benefit of the Option One Owner Trust 2001-1B Mortgage-Backed Notes." The
Distribution Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Distribution Account shall be invested in accordance with Section 5.03
hereof. The Servicer may, at its option, maintain one account to serve as both
the Distribution Account and the Collection Account, in which case, the account
shall be entitled "Option One Owner Trust 2001-1B Collection/Distribution
Account, Wells Fargo Bank, N.A., as Indenture Trustee, for the benefit of the
Option One Owner Trust 2001-1B Mortgage-Backed Notes." If the Servicer makes
such an election, all references herein or in any other Basic Document to either
the Collection Account or the Distribution Account shall mean the
Collection/Distribution Account described in the preceding sentence.

                                       54
<PAGE>

                  (3) The Servicer will inform the Indenture Trustee of the
location of any accounts held in the Indenture Trustee's name, including any
location to which an account is transferred.

            (b) Deposits to Collection Account. The Servicer shall deposit or
cause to be deposited (without duplication):

                  (i) all payments on or in respect of each Loan collected on or
after the related Transfer Cut- off Date or with respect to each Loan purchased
from a QSPE Affiliate, all such payments allocable to such Loan on or after the
related Transfer Date (net, in each case, of any Servicing Compensation retained
therefrom) within two (2) Business Days after receipt thereof;

                  (ii) all Net Liquidation Proceeds within two (2) Business Days
after receipt thereof;

                  (iii) all Mortgage Insurance Proceeds within two (2) Business
Days after receipt thereof;

                  (iv) all Released Mortgaged Property Proceeds within two (2)
Business Days after receipt thereof;

                  (v) any amounts payable in connection with the repurchase of
any Loan and the amount of any Substitution Adjustment pursuant to Sections 2.05
and 3.06 hereof concurrently with payment thereof;

                  (vi) any Repurchase Price payable in connection with a
Servicer Call pursuant to Section 3.08 hereof concurrently with payment thereof;

                  (vii) the deposit of the Termination Price under Section 10.02
hereof concurrently with payment thereof;

                  (viii) Nonutilization Fees;

                  (ix) [reserved];

                  (x) any payments received under Hedging Instruments or the
return of amounts by the Hedging Counterparty pledged pursuant to prior Hedge
Funding Requirements in accordance with the last sentence of this Section
5.01(b)(1); and

                  (xi) any Repurchase Price payable in connection with a
Servicer Put remitted by the Servicer pursuant to Section 3.08.

      Except as otherwise expressly provided in Section 5.01(c)(4)(i), the
Servicer agrees that it will cause the Loan Originator, Borrower or other
appropriate Person paying such amounts, as the case may be, to remit directly to
the Servicer for deposit into the Collection Account all amounts referenced in
clauses (i) through (xi) to the extent such amounts are in excess of a

                                       55
<PAGE>

Monthly Payment on the related Loan. To the extent the Servicer receives any
such amounts, it will deposit them into the Collection Account on the same
Business Day as receipt thereof.

            (c) Withdrawals From Collection Account; Deposits to Distribution
Account.

                  (1) Withdrawals From Collection Account -- Reimbursement
Items. The Paying Agent shall periodically but in any event on each
Determination Date, make the following withdrawals from the Collection Account
prior to any other withdrawals, in no particular order of priority:

                  (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error, including Servicing
Compensation;

                  (ii) to withdraw the Servicing Advance Reimbursement Amount;
and

                  (iii) to clear and terminate the Collection Account in
connection with the termination of this Agreement.

                  (2) Deposits to Distribution Account - Payment Dates.

                  (A) On the Business Day prior to each Payment Date, the Paying
Agent shall deposit into the Distribution Account such amounts as are required
from the Transfer Obligation Account pursuant to Sections 5.05(e), 5.05(f),
5.05(g) and 5.05(h).

                  (B) After making all withdrawals specified in Section
5.01(c)(1) above, on each Remittance Date, the Paying Agent (based on
information provided by the Servicer for such Payment Date), shall withdraw the
Monthly Remittance Amount (or, with respect to an additional Payment Date
pursuant to Section 5.01(c)(4)(ii), all amounts on deposit in the Collection
Account on such date up to the amount necessary to make the payments due on the
related Payment Date in accordance with Section 5.01(c)(3)) from the Collection
Account not later than 5:00 P.M., New York City time and deposit such amount
into the Distribution Account.

                  (C) On each Payment Date, the Servicer shall cause to be
deposited in the Distribution Account all payments on the Advance Note made on
or before such Payment Date and not previously distributed pursuant to Section
5.01(c)(3).

                  (D) The Servicer shall deposit or cause to be deposited in the
Distribution Account any cash Disposition Proceeds pursuant to Section 3.07. To
the extent the Servicer receives such amounts, it will deposit them into the
Distribution Account on the same Business Day as receipt thereof.

                  (E) On each Payment Date, the Servicer shall cause to be
deposited in the Distribution Account all payments on each Residual Security
made on or before such Payment Date.

                  (3) Withdrawals From Distribution Account -- Payment Dates. On
each Payment Date, to the extent funds are available in the Distribution
Account, the Paying Agent

                                       56
<PAGE>

(based on the information provided by the Servicer contained in the Servicer's
Remittance Report for such Payment Date) shall make withdrawals therefrom for
application in the following order of priority:

                  (i) to distribute on such Payment Date the following amounts
in the following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Payment
Dates and all amounts owing to the Indenture Trustee pursuant to Section 6.07 of
the Indenture and not paid by the Servicer or the Depositor up to an amount not
to exceed $25,000 per annum, (b) to the Custodian, an amount equal to the
Custodian Fee and all unpaid Custodian Fees from prior Payment Dates, (c) to the
Servicer, an amount equal to the Servicing Compensation and all unpaid Servicing
Compensation from prior Payment Dates (to the extent not retained from
collections or remitted to the Servicer pursuant to Section 5.01(c)) and (d) to
the Servicer, in trust for the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Payment Dates;

                  (ii) to distribute on such Payment Date, the Hedge Funding
Requirement to the appropriate Hedging Counterparties;

                  (iii) to the holders of the Notes pro rata, the sum of the
Interest Payment Amount for such Payment Date and the Interest Carry-Forward
Amount for the preceding Payment Date;

                  (iv) to the holders of the Notes pro rata, the
Overcollateralization Shortfall for such Payment Date; provided, however, that
if (a) a Rapid Amortization Trigger shall have occurred and not been Deemed
Cured or (b) an Event of Default under the Indenture or Default shall have
occurred, the holders of the Notes shall receive, in respect of principal, all
remaining amounts on deposit in the Distribution Account;

                  (v) to the Initial Noteholder, the Nonutilization Fee for such
Payment Date, together with any Nonutilization Fees unpaid from any prior
Payment Dates;

                  (vi) to the appropriate Person, amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) and Due
Diligence Fees until such amounts are paid in full;

                  (vii) to the Transfer Obligation Account, all remaining
amounts until the balance therein equals the Transfer Obligation Target Amount;

                  (viii) to the Indenture Trustee all amounts owing to the
Indenture Trustee pursuant to Section 6.07 of the Indenture and not paid
pursuant to clause (i) above;

                  (ix) all Nonrecoverable Servicing Advances not previously
reimbursed; and

                  (x) to the holders of the Trust Certificates, in accordance
with Section 5.2(b) of the Trust Agreement, all amounts remaining therein.

                                       57
<PAGE>

                        (4) (i) If the Loan Originator or the Servicer, as
applicable, repurchases, purchases or substitutes a Loan pursuant to Section
2.05, 3.06, 3.08(a), 3.08(b) or 3.08(c), then the Noteholders and the Issuer
shall deem such date to be an additional Payment Date and the Issuer shall
provide written notice to the Indenture Trustee and the Paying Agent of such
additional Payment Date at least one Business Day prior to such Payment Date. On
such additional Payment Date, the Loan Originator or the Servicer, in
satisfaction of its obligations under 2.05, 3.06, 3.08(a) 3.08(b) or 3.08(c) and
in satisfaction of the obligations of the Issuer and the Paying Agent to
distribute such amounts to the Noteholders pursuant to Section 5.01(c), shall
remit to the Noteholders, on behalf of the Issuer and the Paying Agent, an
amount equal to the Repurchase Prices and any Substitution Adjustments (as
applicable) to be paid by the Loan Originator or the Servicer by 12:00 p.m. New
York City time, as applicable, under such Section, on such Payment Date, and the
Note Principal Balance will be reduced accordingly. Such amounts shall be deemed
deposited into the Collection Account and the Distribution Account, as
applicable, and such amounts will be deemed distributed pursuant to the terms of
Section 5.01(c). Upon notice of an additional Payment Date to the Paying Agent
and the Indenture Trustee as provided above, the Paying Agent shall provide the
Loan Originator or the Servicer (as applicable) information necessary so that
remittances to the Noteholders pursuant to this clause (4)(i) may be made by the
Loan Originator or the Servicer, as applicable, in compliance with Section
5.02(a) hereof.

                        (ii) To the extent that there is deposited in the
Collection Account or the Distribution Account any amounts referenced in Section
5.01(b)(1)(vii) and 5.01(c)(2)(D), the Majority Noteholders and the Issuer may
agree, upon reasonable written notice to the Paying Agent and the Indenture
Trustee, to additional Payment Dates. The Issuer and the Majority Noteholder
shall give the Paying Agent and the Indenture Trustee at least one (1) Business
Day's written notice prior to such additional Payment Date and such notice shall
specify each amount in Section 5.01(c) to be withdrawn from the Collection
Account and Distribution Account on such day.

                        (iii) To the extent that there is deposited in the
Distribution Account any amounts referenced in Section 5.05(f), the Majority
Noteholders may, in their sole discretion, establish an additional Payment Date
by written notice delivered to the Paying Agent and the Indenture Trustee at
least one Business Day prior to such additional Payment Date. On such additional
Payment Date, the Paying Agent shall pay the sum of the Overcollateralization
Shortfall to the Noteholders in respect of principal on the Notes.

            Notwithstanding that the Notes have been paid in full, the Indenture
Trustee, the Paying Agent and the Servicer shall continue to maintain the
Distribution Account hereunder until this Agreement has been terminated.

      Section 5.02 Payments to Securityholders.

            (a) All distributions made on the Notes on each Payment Date or
pursuant to Section 5.04(b) of the Indenture will be made on a pro rata basis
among the Noteholders of record of the Notes on the next preceding Record Date
based on the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of

                                       58
<PAGE>

immediately available funds to the account of such Noteholder, if such
Noteholder shall own of record Notes having a Percentage Interest (as defined in
the Indenture) of at least 20% and shall have so notified the Paying Agent and
the Indenture Trustee 5 Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Noteholder appearing in the
Notes Register. The final distribution on each Note will be made in like manner,
but only upon presentment and surrender of such Note at the location specified
in the notice to Noteholders of such final distribution.

            (b) All distributions made on the Trust Certificates on each Payment
Date or pursuant to Section 5.04(b) of the Indenture will be made in accordance
with the Percentage Interest among the holders of the Trust Certificates of
record on the next preceding Record Date based on their Percentage Interests (as
defined in the Trust Agreement) on the date of distribution, without preference
or priority of any kind, and, except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of each such holder, if such holder shall own of record a
Trust Certificate in an original denomination aggregating at least 25% of the
Percentage Interests and shall have so notified the Paying Agent and the
Indenture Trustee 5 Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Certificateholder appearing in
the Certificate Register. The final distribution on each Trust Certificate will
be made in like manner, but only upon presentment and surrender of such Trust
Certificate at the location specified in the notice to holders of the Trust
Certificates of such final distribution. Any amount distributed to the holders
of the Trust Certificates on any Payment Date shall not be subject to any claim
or interest of the Noteholders. In the event that at any time there shall be
more than one Certificateholder, the Indenture Trustee shall be entitled to
reasonable additional compensation from the Servicer for any increase in its
obligations hereunder.

      Section 5.03 Trust Accounts; Trust Account Property.

            (a) Control of Trust Accounts. Each of the Trust Accounts
established hereunder has been pledged by the issuer to the Indenture Trustee
under the Indenture and shall be subject to the lien of the Indenture. Amounts
distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the
Trust Estate upon such distribution thereunder or hereunder. The Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and
income shall be part of the Trust Account Property and the Trust Estate. If, at
any time, any Trust Account ceases to be an Eligible Account, the Indenture
Trustee shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, with the prior written consent of the Majority Noteholders) (i)
establish a new Trust Account as an Eligible Account, (ii) terminate the
ineligible Trust Account, and (iii) transfer any cash and investments from such
ineligible Trust Account to such new Trust Account.

            With respect to the Trust Accounts, the Issuer and the Indenture
Trustee agree, that each such Trust Account shall be subject to the sole and
exclusive dominion, custody and control of the Indenture Trustee for the benefit
of the Noteholders, and, except as may be

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consented to in writing by the Majority Noteholders, the Indenture Trustee shall
have sole signature and withdrawal authority with respect thereto.

            The Servicer (unless it is also the Paying Agent) shall not be
entitled to make any withdrawals or payments from the Trust Accounts.

            (b) (1) Investment of Funds. Funds held in the Collection Account,
the Distribution Account and the Transfer Obligation Account may be invested (to
the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Servicer prior to the occurrence of an
Event of Default and by the Majority Noteholders thereafter, in writing or
facsimile transmission confirmed in writing by the Servicer or Majority
Noteholders, as applicable. In the event the Indenture Trustee has not received
such written direction, such Funds shall be invested in any Permitted Investment
described in clause (i) of the definition of Permitted Investments. In any case,
funds in the Collection Account, the Distribution Account and the Transfer
Obligation Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, one
Business Day prior to the next Payment Date and shall not be sold or disposed of
prior to its maturity subject to Subsection (b)(2) of this Section. All interest
and any other investment earnings on amounts or investments held in the
Collection Account, the Distribution Account and the Transfer Obligation Account
shall be paid to the Servicer immediately upon receipt by the Indenture Trustee.
All Permitted Investments in which funds in the Collection Account, the
Distribution Account or the Transfer Obligation Account are invested must be
held by or registered in the name of "Wells Fargo Bank, N.A., as Indenture
Trustee, in trust for the Option One Owner Trust 2001-1B Mortgage-Backed Notes."

                  (2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from the Collection Account, the Distribution
Account or the Transfer Obligation Account held by or on behalf of the Indenture
Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in the Collection
Account, the Distribution Account or the Transfer Obligation Account, as the
case may be. The Indenture Trustee shall not be liable for any investment loss
or other charge resulting therefrom, unless such loss or charge is caused by the
failure of the Indenture Trustee to perform in accordance with written
directions provided pursuant to this Section 5.03.

            If any losses are realized in connection with any investment in the
Collection Account, the Distribution Account or the Transfer Obligation Account
pursuant to this Agreement during a period in which the Servicer has the right
to direct investments pursuant to Section 5.03(b), then the Servicer shall
deposit the amount of such losses (to the extent not offset by income from other
investments in the Collection Account, the Distribution Account or the Transfer
Obligation Account, as the case may be) into the Collection Account, the
Distribution Account or the Transfer Obligation Account, as the case may be,
immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in the Collection Account, the Distribution
Account and the Transfer Obligation Account shall be taxed to the Issuer and for
federal and state income tax purposes the Issuer shall be deemed to be the owner
of the Collection Account, the Distribution Account and/or the Transfer
Obligation Account, as the case may be.

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            (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.

            (d) With respect to the Trust Account Property, the Indenture
Trustee acknowledges and agrees that:

                  (1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to the last
sentence of Subsection (a) of this Section 5.03; and each such Eligible Account
shall be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;

                  (2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraphs (a) and (b) of the definition of "Delivery" in Section 1.01 hereof
and shall be held, pending maturity or disposition, solely by the Indenture
Trustee or a securities intermediary (as such term is defined in Section
8-102(a)(14) of the UCC) acting solely for the Indenture Trustee;

                  (3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" in Section 1.01 hereof and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such paragraph; and

                  (4) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (3)
above shall be delivered to the Indenture Trustee in accordance with paragraph
(d) of the definition of "Delivery" in Section 1.01 hereof and shall be
maintained by the Indenture Trustee, pending maturity or disposition, through
continued registration of the Indenture Trustee's (or its nominee's) ownership
of such security.

      Section 5.04 Advance Account.

            (a) The Servicer shall cause to be established and maintained in its
name, an Advance Account (the "Advance Account"), which need not be a segregated
account. The Advance Account shall be maintained with any financial institution
the Servicer elects.

            (b) Deposits and Withdrawals. Amounts in respect of the transfer of
Additional Note Principal Balances purchased on Transfer Dates related to Loans
and Residual Securities shall be deposited in and withdrawn from the Advance
Account as provided in Sections 2.01 (c) and 2.06 hereof and Section 3.01 of the
Note Purchase Agreement.

      Section 5.05 Transfer Obligation Account.

            (a) The Servicer, for the benefit of the Noteholders, shall cause to
be established and maintained in the name of the Indenture Trustee a Transfer
Obligation Account (the "Transfer Obligation Account"), which shall be a
separate Eligible Account and may be

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<PAGE>

interest-bearing, entitled "Option One Owner Trust 2001-1B Transfer Obligation
Account, Wells Fargo Bank, N.A., as Indenture Trustee, in trust for the Option
One Owner Trust 2001-1B Mortgage-Backed Notes." The Indenture Trustee shall have
no monitoring or calculation obligation with respect to withdrawals from the
Transfer Obligation Account. Amounts in the Transfer Obligation Account shall be
invested in accordance with Section 5.03.

            (b) In accordance with Section 5.06, the Loan Originator shall
deposit into the Transfer Obligation Account any amounts as may be required
thereby.

            (c) On each Payment Date, the Paying Agent will deposit in the
Transfer Obligation Account any amounts required to be deposited therein
pursuant to Section 5.01(c)(3)(vii).

            (d) On the date of each Disposition, the Paying Agent shall withdraw
from the Transfer Obligation Account such amount on deposit therein in respect
of the payment of Transfer Obligations as may be requested by the Disposition
Agent in writing to effect such Disposition.

            (e) On each Payment Date, the Paying Agent shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account and (y) the Interest Carry-Forward Amount as of such date.

            (f) If with respect to any Business Day there exists an
Overcollateralization Shortfall, the Paying Agent, upon the written direction of
the Initial Noteholder, shall withdraw from the Transfer Obligation Account and
deposit into the Distribution Account on such Business Day the lesser of (x) the
amount then on deposit in the Transfer Obligation Account and (y) the amount of
such Overcollateralization Shortfall as of such date.

            (g) If with respect to any Payment Date there shall exist a Hedge
Funding Requirement, the Paying Agent, upon the written direction of the
Servicer or the Initial Noteholder, shall withdraw from the Transfer Obligation
Account and deposit into the Distribution Account on the Business Day prior to
such Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account (after making all other required withdrawals therefrom with
respect to such Payment Date) and (y) the amount of such Hedge Funding
Requirement as of such date.

            (h) In the event of the occurrence of an Event of Default under the
Indenture, the Paying Agent shall withdraw all remaining funds from the Transfer
Obligation Account and apply such funds in satisfaction of the Notes as provided
in Section 5.04(b) of the Indenture.

            (i) The Paying Agent shall return to the Loan Originator all amounts
on deposit in the Transfer Obligation Account (after making all other
withdrawals pursuant to this Section 5.05) until the Majority Noteholders
provide written notice to the Indenture Trustee (with a copy to the Loan
Originator and the Servicer) of the occurrence of a default or event of default
(however defined) under any Basic Document with respect to the Issuer, the
Depositor, the Loan Originator or any of their Affiliates and (ii) upon the date
of the termination of this

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Agreement pursuant to Article X, the Paying Agent shall withdraw any remaining
amounts from the Transfer Obligation Account and remit all such amounts to the
Loan Originator.

      Section 5.06 Transfer Obligation.

            (a) In consideration of the transactions contemplated by the Basic
Documents, the Loan Originator agrees and covenants with the Depositor that:

                  (i) In connection with each Disposition it shall fund, or
cause to be funded, reserve funds, pay credit enhancer fees, pay, or cause to be
paid, underwriting fees, fund any difference between the cash Disposition
Proceeds and the aggregate Note Principal Balance at the time of such
Disposition, and make, or cause to be made, such other payments as may be, in
the reasonable opinion of the Disposition Agent, commercially reasonably
necessary to effect Dispositions, in each case to the extent that Disposition
Proceeds are insufficient to pay such amounts;

                  (ii) In connection with Hedging Instruments, on the Business
Day prior to each Payment Date, it shall deliver to the Servicer for deposit
into the Transfer Obligation Account any Hedge Funding Requirement (to the
extent amounts available on the related Payment Date pursuant to Section 5.01
are insufficient to make such payment), when, as and if due to any Hedging
Counterparty;

                  (iii) if any Interest Carry-Forward Amount shall occur, it
shall deposit into the Transfer Obligation Account any such Interest
Carry-Forward Amount on or before the Business Day preceding such related
Payment Date;

                  (iv) If on any Business Day there exists an
Overcollateralization Shortfall, upon the written direction of the Initial
Noteholder, it shall on such Business Day deposit into the Transfer Obligation
Account the full amount of the Overcollateralization Shortfall as of such date,
provided, that in the event that notice of such Overcollateralization Shortfall
is provided to the Loan Originator after 3:00 p.m. New York City time, the Loan
Originator shall make such deposit on the following Business Day; and

                  (v) Notwithstanding anything to the contrary herein, in the
event of the occurrence of an Event of Default under the Indenture, the Loan
Originator shall promptly deposit into the Transfer Obligation Account the
entire amount of the Unfunded Transfer Obligation;

provided, that notwithstanding anything to the contrary contained herein, the
Loan Originator's cumulative payments under or in respect of the Transfer
Obligations (after subtracting therefrom any amounts returned to the Loan
Originator pursuant to Section 5.05(i)(i)) together with the Servicer's payments
in respect of any Servicer Puts shall not in the aggregate exceed the Unfunded
Transfer Obligation.

            (b) The Loan Originator agrees that the Noteholders, as ultimate
assignee of the rights of the Depositor under this Agreement and the other Basic
Documents, may enforce the rights of the Depositor directly against the Loan
Originator.

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<PAGE>

                                   ARTICLE VI

              STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

      Section 6.01 Statements.

            (a) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall deliver to the Indenture Trustee and the Initial
Noteholder by electronic transmission, the receipt and legibility of which shall
be confirmed by telephone, and with hard copy thereof to be delivered no later
than one (1) Business Day after such Remittance Date, the Servicer's Remittance
Report, setting forth the date of such Report (day, month and year), the name of
the Issuer (i.e., "Option One Owner Trust 2001-1B"), and the date of this
Agreement, all in substantially the form set out in Exhibit B hereto.
Furthermore, on each Remittance Date, the Servicer shall deliver to the
Indenture Trustee and the Initial Noteholder a data file providing, with respect
to each Loan in the Loan Pool as of the last day of the related Remittance
Period (i) if such Loan is an ARM, the current Loan Interest Rate; (ii) the
Principal Balance with respect to such Loan; (iii) the date of the last Monthly
Payment paid in full; and (iv) such other information as may be reasonably
requested by the Initial Noteholder and the Indenture Trustee. In addition, no
later than 12:00 noon (New York City time) on the 15th day of each calendar
month (or if such day is not a Business Day, the preceding Business Day), the
Custodian shall prepare and provide to the Servicer and the Indenture Trustee by
facsimile, the Custodian Fee Notice for the Payment Date falling in such
calendar month.

            (b) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall prepare (or cause to be prepared) and provide to the
Indenture Trustee electronically or via fax, receipt confirmed by telephone, the
Initial Noteholder and each Noteholder, a statement (the "Payment Statement"),
stating each date and amount of a purchase of Additional Note Principal Balance
(day, month and year), the name of the Issuer (i.e., "Option One Owner Trust
2001-1B"), the date of this Agreement and the following information:

                  (1) the aggregate amount of collections in respect of
principal of the Loans received by the Servicer during the preceding Remittance
Period;

                  (2) the aggregate amount of collections in respect of interest
on the Loans received by the Servicer during the preceding Remittance Period;

                  (3) all Mortgage Insurance Proceeds received by the Servicer
during the preceding Remittance Period and not required to be applied to
restoration or repair of the related Mortgaged Property or returned to the
Borrower under applicable law or pursuant to the terms of the applicable
Mortgage Insurance Policy;

                  (4) all Net Liquidation Proceeds deposited by the Servicer
into the Collection Account during the preceding Remittance Period;

                  (5) all Released Mortgaged Property Proceeds deposited by the
Servicer into the Collection Account during the preceding Remittance Period;

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<PAGE>

                  (6) the aggregate amount of all Servicing Advances made by the
Servicer during the preceding Remittance Period;

                  (7) the aggregate of all amounts deposited into the
Distribution Account in respect of the repurchase of Unqualified Loans and the
repurchase of Loans pursuant to Section 2.05 hereof during the preceding
Remittance Period;

                  (8) the aggregate Principal Balance of all Loans for which a
Servicer Call was exercised during the preceding Remittance Period;

                  (9) the aggregate Principal Balance of all Loans for which a
Servicer Put was exercised during the preceding Remittance Period;

                  (10) the aggregate amount of all payments received under
Hedging Instruments during the preceding Remittance Period;

                  (11) the aggregate amount of all withdrawals from the
Distribution Account pursuant to Section 5.01(c)(1)(i) hereof during the
preceding Remittance Period;

                  (12) the aggregate amount of cash Disposition Proceeds
received during the preceding Remittance Period;

                  (13) withdrawals from the Collection Account in respect of the
Servicing Advance Reimbursement Amount with respect to the related Payment Date;

                  (14) [reserved];

                  (15) the number and aggregate Principal Balance of all Loans
that are (i) 30-59 days Delinquent, (ii) 60- 89 days Delinquent, (iii) 90 or
more days Delinquent as of the end of the related Remittance Period;

                  (16) the aggregate amount of Liquidated Loan Losses incurred
(i) during the preceding Remittance Period, and (ii) during the preceding three
Remittance Periods;

                  (17) the aggregate of the Principal Balances of all Loans in
the Loan Pool as of the end of the related Remittance Period;

                  (18) the aggregate amount of all deposits into the
Distribution Account from the Transfer Obligation Account pursuant to Sections
5.05(e), 5.05(f), 5.05(g), and 5.05(h) on the related Payment Date;

                  (19) the aggregate amount of distributions in respect of
Servicing Compensation to the Servicer, and unpaid Servicing Compensation from
prior Payment Dates for the related Payment Date;

                  (20) the aggregate amount of distributions in respect of
Indenture Trustee Fees and unpaid Indenture Trustee Fees from prior Payment
Dates for the related Payment Date;

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<PAGE>

                  (21) the aggregate amount of distributions in respect of the
Custodian Fee and unpaid Custodian Fees from prior Payment Dates for the related
Payment Date;

                  (22) the aggregate amount of distributions in respect of the
Owner Trustee Fees and unpaid Owner Trustee Fees from prior Payment Dates and
for the related Payment Date;

                  (23) the Unfunded Transfer Obligation and
Overcollateralization Shortfall on such Payment Date for the related Payment
Date;

                  (24) the aggregate amount of distributions to the Transfer
Obligation Account for the related Payment Date;

                  (25) the aggregate amount of distributions in respect of
Trust/Depositor Indemnities for the related Payment Date;

                  (26) the aggregate amount of distributions to the holders of
the Trust Certificates for the related Payment Date;

                  (27) the Note Principal Balance of the Notes as of the last
day of the related Remittance Period (without taking into account any Additional
Note Principal Balance between the last day of such Remittance Period and the
related Payment Date) before and after giving effect to distributions made to
the holders of the Notes for such Payment Date;

                  (28) the Pool Principal Balance as of the end of the preceding
Remittance Period; and

                  (29) whether a Performance Trigger or a Rapid Amortization
Trigger shall exist with respect to such Payment Date.

Such Payment Statement shall also be provided on the Remittance Date to the
Initial Noteholder and Indenture Trustee in the form of a data file in a form
mutually agreed to by and between the Initial Noteholder, the Indenture Trustee
and the Servicer. The Indenture Trustee shall have no duty to monitor the
occurrence of a Performance Trigger, Rapid Amortization Trigger or any events
resulting in withdrawals from the Transfer Obligation Account.

      Section 6.02 Specification of Certain Tax Matters.

      The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient. Any
amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of this
Agreement. The Indenture Trustee shall have no responsibility for preparing or
filing any tax returns.

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<PAGE>

      Section 6.03 Valuation of Loans and Residual Securities, Hedge Value and
Retained Securities Value; Market Value Agent.

            (a) The Initial Noteholder hereby irrevocably appoints, and the
Issuer hereby consents to the appointment of, the Market Value Agent as agent on
behalf of the Noteholders to determine the Market Value of each Loan and
Residual Security, the Hedge Value of each Hedging Instrument and the Retained
Securities Value of all Retained Securities.

            (b) Except as otherwise set forth in Section 3.07, the Market Value
Agent shall determine the Market Value of each Loan and Residual Security, for
the purposes of the Basic Documents, in its sole judgment, exercised in good
faith. In determining the Market Value of each Loan and Residual Security, the
Market Value Agent may consider any information that it may deem relevant and
shall base such determination primarily on the lesser of its estimate of the
projected proceeds from such Loan's or Residual Security's inclusion in (i) a
Securitization (inclusive of the projected Retained Securities Value of any
Retained Securities to be issued in connection with such Securitization) and
(ii) a Whole Loan Sale, in each case net of such Loan's ratable share of all
costs and fees associated with such Disposition, including, without limitation,
any costs of issuance, sale, underwriting and funding reserve accounts. The
Market Value Agent's determination, in its sole judgment, of Market Value shall
be conclusive and binding upon the parties hereto, absent manifest error
(including without limitation, any error contemplated in Section 2.08).

            (c) On each Business Day the Market Value Agent shall determine in
its sole judgment, exercised in good faith, the Hedge Value of each Hedging
Instrument as of such Business Day. In making such determination the Market
Value Agent may rely exclusively on quotations provided by the Hedging
Counterparty, by leading dealers in instruments similar to such Hedging
Instrument, which leading dealers may include the Market Value Agent and its
Affiliates and such other sources of information as the Market Value Agent may
deem appropriate.

            (d) On each Business Day, the Market Value Agent shall determine in
its sole judgment, exercised in good faith, the Retained Securities Value of the
Retained Securities, if any, expected to be issued pursuant to such
Securitization as of the closing date of such Securitization. In making such
determination the Market Value Agent may rely exclusively on quotations provided
by leading dealers in instruments similar to such Retained Securities, which
leading dealers may include the Market Value Agent and its Affiliates and such
other sources of information as the Market Value Agent may deem appropriate.

                                  ARTICLE VII

                          HEDGING; FINANCIAL COVENANTS

      Section 7.01 Hedging Instruments.

            (a) On each Transfer Date, the Trust shall enter into such Hedging
Instruments as the Market Value Agent, on behalf of the Majority Noteholders,
shall determine are necessary in order to hedge the interest rate risk with
respect to the Collateral Value of the

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<PAGE>

Loans being purchased on such Transfer Date. The Market Value Agent shall
determine, in its sole discretion, whether any Hedging Instrument conforms to
the requirements of Section 7.01(b), (c) and (d).

            (b) Each Hedging Instrument shall expressly provide that in the
event of a Disposition or other removal of the Loan from the Trust, such portion
of the Hedging Instrument shall terminate as the Disposition Agent deems
appropriate to facilitate the hedging of the risks specified in Section 7.01(a).
In the event that the Hedging Instrument is not otherwise terminated, it shall
contain provisions that allow the position of the Trust to be assumed by an
Affiliate of the Trust upon the liquidation of the Trust. The terms of the
assignment documentation and the credit quality of the successor to the Trust
shall be subject to the Hedging Counterparty's approval.

            (c) Any Hedging Instrument that provides for any payment obligation
on the part of the Issuer must (i) be without recourse to the assets of the
Issuer, (ii) contain a non-petition covenant provision in the form of Section
11.13, (iii) limit payment dates thereunder to Payment Dates and (iv) contain a
provision limiting any cash payments due on any day under such Hedging
Instrument solely to funds available therefor in the Collection Account on such
day pursuant to Section 5.01(c)(3)(ii) hereof and funds available therefor in
the Transfer Obligation Account.

            (d) Each Hedging Instrument must (i) provide for the direct payment
of any amounts thereunder to the Collection Account pursuant to Section
5.01(b)(1)(x), (ii) contain an assignment of all of the Issuer's rights (but
none of its obligations) under such Hedging Instrument to the Indenture Trustee
and shall include an express consent to the Hedging Counterparty to such
assignment, (iii) provide that in the event of the occurrence of an Event of
Default, such Hedging Instrument shall terminate upon the direction of the
Majority Noteholders, (iv) prohibit the Hedging Counterparty from "setting-off"
or "netting" other obligations of the Issuer or its Affiliates against such
Hedging Counterparty's payment obligations thereunder, (v) provide that the
appropriate portion of the Hedging Instrument will terminate upon the removal of
the related Loans from the Trust Estate and (vi) have economic terms that are
fixed and not subject to alteration after the date of assumption or execution.

            (e) If agreed to by the Majority Noteholders, the Issuer may pledge
its assets in order to secure its obligations in respect of Hedge Funding
Requirements, provided that such right shall be limited solely to Hedging
Instruments for which an Affiliate of the Initial Noteholder is a Hedging
Counterparty.

            (f) The aggregate notional amount of all Hedging Instruments shall
not exceed the Note Principal Balance as of the date on which each Hedging
Instrument is entered into by the Issuer and a Hedging Counterparty.

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<PAGE>

      Section 7.02 Financial Covenants.

      Each of the Loan Originator and the Servicer shall satisfy the Financial
Covenants.

                                  ARTICLE VIII

                                  THE SERVICER

      Section 8.01 Indemnification; Third Party Claims.

            (a) The Servicer shall indemnify the Loan Originator, the Owner
Trustee, the Trust, the Depositor, the Indenture Trustee and the Noteholders,
their respective officers, directors, employees, agents and "control persons,"
as such term is used under the Act and under the Securities Exchange Act of 1934
as amended (each a "Servicer Indemnified Party") and hold harmless each of them
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and other costs and expenses
resulting from any claim, demand, defense or assertion based on or grounded
upon, or resulting from, a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Loans in
compliance with the terms of this Agreement except to the extent such loss
arises out of such Servicer Indemnified Party's gross negligence or willful
misconduct; provided, however, that if the Servicer is not liable pursuant to
the provisions of Section 8.01(b) hereof for its failure to perform its duties
and service the Loans in compliance with the terms of this Agreement, then the
provisions of this Section 8.01 shall have no force and effect with respect to
such failure.

            (b) None of the Loan Originator, the Depositor or the Servicer or
any of their respective Affiliates, directors, officers, employees or agents
shall be under any liability to the Owner Trustee, the Issuer, the Indenture
Trustee or the Securityholders for any action taken, or for refraining from the
taking of any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates,
directors, officers, employees, agents against the remedies provided herein for
the breach of any warranties, representations or covenants made herein, or
against any expense or liability specifically required to be borne by such party
without right of reimbursement pursuant to the terms hereof, or against any
expense or liability which would otherwise be imposed by reason of misfeasance,
bad faith or negligence in the performance of the respective duties of the
Servicer, the Depositor or the Loan Originator, as the case may be. The Loan
Originator, the Depositor, the Servicer and any of their respective Affiliates,
directors, officers, employees, agents may rely in good faith on any document of
any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.

            (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor and the Noteholders, as the ultimate assignees from the Depositor
(each an "Originator Indemnified Party," together with the Servicer Indemnified
Parties, the "Indemnified Parties"), from and against any loss, liability,
expense, damage, claim or injury arising out of or based on (i) any breach of
any representation, warranty or covenant of the Loan Originator, the Servicer or

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<PAGE>

their Affiliates, in any Basic Document, including, without limitation, the
origination or prior servicing of the Loans by reason of any acts, omissions, or
alleged acts or omissions arising out of activities of the Loan Originator, the
Servicer or their Affiliates, and (ii) any untrue statement by the Loan
Originator, the Servicer or its Affiliates of any material fact or any such
Person's failure to state a material fact necessary to make such statements not
misleading with respect to any such Person's statements contained in any Basic
Document, including, without limitation, any Officer's Certificate, statement,
report or other document or information prepared by any such Person and
furnished or to be furnished by it pursuant to or in connection with the
transactions contemplated thereby and not corrected prior to completion of the
relevant transaction including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the Loans or any such Person's business,
operations or financial condition, including reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Loan Originator shall
not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due to either an Originator Indemnified
Party's willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party's reckless disregard of its obligations hereunder;
provided, further, that the Loan Originator shall not be so required to
indemnify an Originator Indemnified Party or to otherwise be liable to an
Originator Indemnified Party for any losses in respect of the performance of the
Loans or Residual Securities, the creditworthiness of the Borrowers under the
Loans, changes in the market value of the Loans or Residual Securities or other
similar investment risks associated with the Loans or Residual Securities
arising from a breach of any representation or warranty set forth in Exhibit E
hereto or Section 3 of the Residual Securities Transfer Agreement, as
applicable, a remedy for the breach of which is provided in Section 3.06 hereof.
The provisions of this indemnity shall run directly to and be enforceable by an
Originator Indemnified Party subject to the limitations hereof.

            (d) With respect to a claim subject to indemnity hereunder made by
any Person against an Indemnified Party (a "Third Party Claim"), such
Indemnified Party shall notify the related indemnifying parties (each an
"Indemnifying Party") in writing of the Third Party Claim within a reasonable
time after receipt by such Indemnified Party of written notice of the Third
Party Claim unless the Indemnifying Parties shall have previously obtained
actual knowledge thereof. Thereafter, the Indemnified Party shall deliver to the
Indemnifying Parties, within a reasonable time after the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim. No failure
to give such notice or deliver such documents shall effect the rights to
indemnity hereunder. Each Indemnifying Party shall promptly notify the Indenture
Trustee and the Indemnified Party (if other than the Indenture Trustee) of any
claim of which it has been notified and shall promptly notify the Indenture
Trustee and the Indemnified Party (if applicable) of its intended course of
action with respect to any claim.

            (e) If a Third Party Claim is made against an Indemnified Party,
while maintaining control over its own defense, the Indemnified Party shall
cooperate and consult fully with the Indemnifying Party in preparing such
defense, and the Indemnified Party may defend the same in such manner as it may
deem appropriate, including settling such claim or litigation after giving
notice to the Indemnifying Party of such terms and the Indemnifying Party will
promptly reimburse the Indemnified Party upon written request; provided,
however, that the

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Indemnified Party may not settle any claim or litigation without the consent of
the Indemnifying Party; provided, further, that the Indemnifying Party shall
have the right to reject the selection of counsel by the Indemnified Party if
the Indemnifying Party reasonably determines that such counsel is inappropriate
in light of the nature of the claim or litigation and shall have the right to
assume the defense of such claim or litigation if the Indemnifying Party
determines that the manner of defense of such claim or litigation is
unreasonable.

      Section 8.02 Merger or Consolidation of the Servicer.

      The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

      Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the issuer.

      Section 8.03 Limitation on Liability of the Servicer and Others.

      The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 8.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.

      Section 8.04 Servicer Not to Resign; Assignment.

      The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Majority Noteholders or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee and the Majority Noteholders. No resignation
of the Servicer shall become effective until a successor servicer, appointed
pursuant to the provisions of Section 9.02 hereof shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.

      Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or

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authorize or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by the Servicer hereunder and any agreement,
instrument or act purporting to effect any such assignment, transfer, delegation
or appointment shall be void.

      The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Loan Files in the possession of the Servicer) and all amounts
received with respect to the Loans and not otherwise permitted to be retained by
the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole
cost and expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Loan Files in its possession
and do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities.

      Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee.

      The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the issuer, the Owner Trustee or the Indenture Trustee.

      Section 8.06 Servicer May Own Securities.

      Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is
a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder. Securities
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement unless the Servicer or such
Affiliate owns all outstanding Securities of the related class. The Servicer
shall notify the Indenture Trustee promptly after it or any of its Affiliates
becomes the owner or pledgee of a Security.

      Section 8.07 Indemnification of the Indenture Trustee and Initial
Noteholder.

      The Servicer agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. The Servicer agrees to indemnify the Initial Noteholder in
accordance with Section 9.01 of the Note Purchase Agreement as if it were
signatory thereto.

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                                   ARTICLE IX

                           SERVICER EVENTS OF DEFAULT

      Section 9.01 Servicer Events of Default.

            (a) In case one or more of the following Servicer Events of Default
shall occur and be continuing, that is to say:

                  (1) any failure by Servicer to deposit into the Collection
Account or the Distribution Account or any failure by Servicer to make any of
the required payments therefrom; or

                  (2) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the material covenants or
agreements on the part of the Servicer, contained in any Basic Document to which
it is a party, which continues unremedied for a period of 30 days (or, in the
case of payment of insurance premiums, for a period of 15 days) after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by any other party hereto or to the
Servicer (with copy to each other party hereto), by Holders of 25% of the
Percentage Interests of the Notes or the Trust Certificates; or

                  (3) any breach on the part of the Servicer of any
representation or warranty contained in any Basic Document to which it is a
party that materially and adversely affects the interests of any of the parties
hereto or any Securityholder and which continues unremedied for a period of 30
days after the date on which notice of such breach, requiring the same to be
remedied, shall have been given to the Servicer by any other party hereto or to
the Servicer (with copy to each other party hereto), by the Initial Noteholder
or Holders of 25% of the Percentage Interests (as defined in the Indenture) of
the Notes; or

                  (4) there shall have been commenced before a court or agency
or supervisory authority having jurisdiction in the premises an involuntary
proceeding against the Servicer under any present or future federal or state
bankruptcy, insolvency or similar law for the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, which action
shall not have been dismissed for a period of 60 days; or

                  (5) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to it or of or relating to all
or substantially all of its property; or

                  (6) the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an assignment
for the benefit of its creditors, voluntarily suspend payment of its
obligations, or take any corporate action in furtherance of the foregoing; or

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                  (7) Reserved; or

                  (8) the Servicer or the Loan Originator fails to comply with
any of its financial covenants set forth in Section 7.02; or

                  (9) a Change of Control of the Servicer; or

                  (10) so long as the Servicer or the Loan Originator is an
Affiliate of either of the Depositor or the Issuer and any "event of default' by
any such party occurs under any of the Basic Documents.

            (b) Then, and in each and every such case, so long as a Servicer
Event of Default shall not have been remedied, the Indenture Trustee or the
Majority Noteholders, by notice in writing to the Servicer may, in addition to
whatever rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, may terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Loans and the
proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Loans or otherwise, shall, subject to
Section 9.02 hereof, pass to and be vested in a successor servicer, and the
successor servicer is hereby authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and do or cause to be done all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
including, but not limited to, the transfer and endorsement or assignment of the
Loans and related documents. The Servicer agrees to cooperate with the successor
servicer in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Loans.

            (c) Upon the occurrence of (i) an Event of Default or Default under
any of the Basic Documents, (ii) a Servicer Event of Default under this
Agreement, (iii) a Rapid Amortization Trigger or (iv) a determination,
reasonably made by the Initial Noteholder, that an event has occurred that shall
materially impair the ability of the Servicer to service and administer the
Loans in accordance with the terms and provisions set forth in the Servicing
Addendum (each, a "Term Event"), the Servicer's right to service the Loans
pursuant to the terms of this Agreement shall be in effect for an initial period
commencing on the date on which such Term Event occurred and shall automatically
terminate at 5:00 p.m. (New York City time), on the last business day of the
calendar month in which such Term Event occurred (the "Initial Term").
Thereafter, the Initial Term shall be extendible in the sole discretion of the
Initial Noteholder by written notice (each, a "Servicer Extension Notice") of
the Initial Noteholder for successive one-month terms (each such term ending at
5:00 p.m. (New York City time), on the last business day of the related month).
Following a Term Event, the Servicer hereby agrees that the Servicer shall be
bound for the duration of the Initial Term and the term covered by any such
Servicer Extension Notice to act as the Servicer pursuant to this Agreement.
Following a Term Event, the Servicer agrees that if, as of 3:00 p.m. (New York
City time) on the last business day of any month, the Servicer shall not have
received a Servicer Extension Notice from the Initial Noteholder, the Servicer
shall give written notice of such non-receipt to the Initial Noteholder by

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4:00 p.m. (New York City time). Following a Term Event, the failure of the
Initial Noteholder to deliver a Servicer Extension Notice by 5:00 p.m. (New York
City time) shall result in the automatic and immediate termination of the
Servicer (the "Termination Date"). Notwithstanding these time frames, the
Servicer and the Initial Noteholder shall comply with all applicable laws in
connection with such transfer and the Servicer shall continue to service the
Loans until completion of such transfer.

      Section 9.02 Appointment of Successor.

      On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is automatically terminated pursuant to
Section 9.01 (c) hereof, or the Owner Trustee receives the resignation of the
Servicer evidenced by an Opinion of Counsel or accompanied by the consents
required by Section 8.04 hereof, or the Servicer is removed as servicer pursuant
to this Article IX or Section 4.01 of the Servicing Addendum, then, the Majority
Noteholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.

      The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 hereof as if the Servicer had continued to act
as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15
of the Servicing Addendum. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 9.01 hereof but shall be entitled to
any accrued and unpaid Servicing Compensation to the date of termination.

      Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Indenture Trustee in connection with the termination of
the Servicer and the succession of a successor servicer shall be an expense of
the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee
and any successor servicer in effecting the termination of the Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
successor servicer all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should
have been deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. Upon the occurrence of an Event
of Default, the Majority Noteholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all

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documents relating to the Loans which are then or may thereafter come into the
possession of the Servicer or any third parry acting for the Servicer to be
delivered to such custodian or servicer as it selects and the Servicer shall
deliver to such custodian or servicer such assignments as the Majority
Noteholders shall request. No successor servicer shall be held liable by reason
of any failure to make, or any delay in making, any distribution hereunder or
any portion thereof caused by (i) the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Servicer
hereunder. No appointment of a successor to the Servicer hereunder shall be
effective until written notice of such proposed appointment shall have been
provided to the Initial Noteholder, the Indenture Trustee, the Issuer and the
Depositor, the Majority Noteholders and the Issuer shall have consented in
writing thereto.

      In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.

      Section 9.03 Waiver of Defaults.

      The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so waived.

      Section 9.04 Accounting Upon Termination of Servicer.

      Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:

            (a) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account maintained by
the Servicer;

            (b) deliver to its successor or, if none shall yet have been
appointed, to the Custodian all Loan Files and related documents and statements
held by it hereunder and a Loan portfolio computer tape;

            (c) deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee and to the Issuer and the Securityholders a
full accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and

            (d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Loans to its successor and to more fully and definitively vest
in such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.

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                                   ARTICLE X

                             TERMINATION; PUT OPTION

            Section 10.01 Termination.

            (a) This Agreement shall terminate upon either: (A) the later of (i)
the satisfaction and discharge of the Indenture and the provisions thereof and
payment to the Noteholders of all amounts due and owing in accordance with the
provisions hereof or (ii) the disposition of all funds with respect to the last
Loan and Residual Security and the remittance of all funds due hereunder and the
payment of all amounts due and payable, including, in both cases, without
limitation, indemnification payments payable pursuant to any Basic Document to
the Indenture Trustee, the Owner Trustee, the Issuer, the Servicer and the
Custodian, written notice of the occurrence of either of which shall be provided
to the Indenture Trustee by the Servicer; or (B) the mutual consent of the
Servicer, the Depositor and all Securityholders in writing and delivered to the
Indenture Trustee by the Servicer.

            (b) The Securities shall be subject to an early redemption or
termination at the option of the Servicer and the Majority Noteholders in the
manner and subject to the provisions of Section 10.02 and 10.04 of this
Agreement.

            (c) Except as provided in this Article X, none of the Depositor, the
Servicer nor any Certificateholder or Noteholder shall be entitled to revoke or
terminate the Trust.

      Section 10.02 Optional Termination.

            (a) The Servicer may, at its option, effect an early termination of
the Trust on any Payment Date on or after the Clean-up Call Date. The Servicer
shall effect such early termination by providing notice thereof to the Indenture
Trustee and Owner Trustee and by purchasing all of the Loans, the Residual
Securities and the Advance Note at a purchase price, payable in cash, equal to
or greater than the Termination Price. The expense of any Independent appraiser
required in connection with the calculation and payment of the Termination Price
under this Section 10.02 shall be a nonreimbursable expense of the Servicer.

      Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c) (1) hereof) shall be deposited in the Distribution Account and
distributed by the Indenture Trustee pursuant to Section 5.01(c)(3) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans, the Residual
Securities and Foreclosure Properties subsequent to the final Payment Date shall
belong to the purchaser thereof.

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      Section 10.03 Notice of Termination.

      Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 10.01 shall be sent by the
Indenture Trustee to the Noteholders in accordance with Section 10.02 of the
Indenture.

      Section 10.04 Put Option.

      The Majority Noteholders may, at their option, effect a put of the entire
outstanding Note Principal Balance, or any portion thereof, to the Trust on any
date by exercise of the Put Option. The Majority Noteholders shall effect such
put by providing notice thereof in accordance with Section 10.05 of the
Indenture.

      Unless otherwise agreed by the Majority Noteholders, on the third Business
Day prior to the Put Date, the Issuer shall deposit the Note Redemption Amount
into the Distribution Account and, if the Put Date occurs after the termination
of the Revolving Period and constitutes a put of the entire outstanding Note
Principal Balance, any amounts then on deposit in the Collection Account (other
than any amounts withdrawable pursuant to Section 5.01(c)(1) hereof) shall be
deposited in the Distribution Account and distributed by the Paying Agent
pursuant to section 5.01 (c) (3) of this Agreement on the Put Date; and any
amounts received with respect to the Loans, Residual Securities and Foreclosure
Properties subsequent to the Put Date shall belong to the Issuer.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

      Section 11.01 Acts of Securityholders.

      Except as otherwise specifically provided herein and except with respect
to Section 11.02(b), whenever action, consent or approval of the Securityholders
is required under this Agreement, such action, consent or approval shall be
deemed to have been taken or given on behalf of, and shall be binding upon, all
Securityholders if the Majority Noteholders agree to take such action or give
such consent or approval.

      Section 11.02 Amendment.

            (a) This Agreement may be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement with notice thereof to the Securityholders, without
the consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders, as evidenced by an Opinion of Counsel to such
effect provided at the expense of the party requesting such Amendment.

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            (b) This Agreement may also be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Loans or Residual Securities or distributions which
are required to be made on any Security, without the consent of the holders of
100% of the Securities, (ii) adversely affect in any material respect the
interests of any of the holders of the Securities in any manner other than as
described in clause (i), without the consent of the holders of 100% of the
Securities, or (iii) reduce the percentage of the Securities, the consent of
which is required for any such amendment, without the consent of the holders of
100% of the Securities.

            (c) It shall not be necessary for the consent of Securityholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.

      Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Issuer and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Issuer's own
rights, duties or immunities of the Issuer or the Indenture Trustee, as the case
may be, under this Agreement.

      Section 11.03 Recordation of Agreement.

      To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders' expense
on direction of the Majority Noteholders but only when accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of the Securityholders or is necessary for the
administration or servicing of the Loans.

      Section 11.04 Duration of Agreement.

      This Agreement shall continue in existence and effect until terminated as
herein provided.

      Section 11.05 Governing Law.

      THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.

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      Section 11.06 Notices.

      All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (1) in the case of the Depositor, to Option One Loan Warehouse
Corporation, 3 Ada, Irvine, California 92618, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (2) in
the case of the Trust, to Option One Owner Trust 2001-1B, c/o Wilmington Trust
Company, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration, telecopy number: (302)
651-8882, telephone number: (302) 651-1000, or such other address or telecopy or
telephone numbers as may hereafter be furnished to the Noteholders and the other
parties hereto in writing by the Trust; (3) in the case of the Loan Originator,
to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention:
William O'Neill, telecopy number: (949) 790-7540, telephone number: (949)
790-7504 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Loan Originator; (4) in the case of the Servicer, to Option One
Mortgage Corporation, 3 Ada, Irvine, California 92618, Attention: William
O'Neill, telecopy number: (949) 790-7540, telephone number: (949) 790-7504 or
such other addresses or telecopy or telephone numbers as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Servicer; and (5) in the case of the Indenture Trustee, at the Corporate Trust
Office, as defined in the Indenture, any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice or
telephone confirmation thereof by such party, except; provided, that notices to
the Securityholders shall be effective upon mailing or personal delivery.

      Section 11.07 Severability of Provisions.

      If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.

      Section 11.08 No Partnership.

      Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

      Section 11.09 Counterparts.

      This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

                                       80
<PAGE>

      Section 11.10 Successors and Assigns.

      This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.

      Section 11.11 Headings.

      The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.

      Section 11.12 Actions of Securityholders.

            (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Depositor, the Servicer or the Issuer. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Depositor, the Servicer and the Issuer if made in the manner provided in this
Section 11.12.

            (b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.

            (c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.

            (d) The Depositor, the Servicer or the Issuer may require additional
proof of any matter referred to in this Section 11.12 as it shall deem
necessary.

      Section 11.13 Non-Petition Agreement.

      Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Servicer, the Depositor and the Indenture Trustee each severally
and not jointly covenants that it shall not, prior to the date which is one year
and one day after the payment in full of the all of the Notes, acquiesce,
petition or otherwise, directly or indirectly, invoke or cause the Trust or the
Depositor to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Issuer or Depositor 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 Issuer or Depositor or any substantial part of their respective property
or ordering the winding up or liquidation of the affairs of the Issuer or the
Depositor.

                                       81
<PAGE>

      Section 11.14 Holders of the Securities.

            (a) Any sums to be distributed or otherwise paid hereunder or under
this Agreement to the holders of the Securities shall be paid to such holders
pro rata based on their Percentage Interests;

            (b) Where any act or event hereunder is expressed to be subject to
the consent or approval of the holders of the Securities, such consent or
approval shall be capable of being given by the holder or holders evidencing in
the aggregate not less than 51% of the Percentage Interests.

      Section 11.15 Due Diligence Fees, Due Diligence.

      The Loan Originator acknowledges that the Initial Noteholder has the right
to perform continuing due diligence reviews with respect to the Loans, for
purposes of verifying compliance with the representations, warranties and
specifications made hereunder, or otherwise, and the Loan Originator agrees that
upon reasonable prior notice (with no notice being required upon the occurrence
of an Event of Default) to the Loan Originator, the Initial Noteholder, the
Indenture Trustee and Custodian or its authorized representatives will be
permitted during normal business hours to examine, inspect, and make copies and
extracts of, the Loan Files and any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control of the Servicer and the Indenture Trustee. The Loan Originator also
shall make available to the Initial Noteholder a knowledgeable financial or
accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans and the financial condition of the Loan Originator. Without
limiting the generality of the foregoing, the Loan Originator acknowledges that
the Initial Noteholder may purchase Notes based solely upon the information
provided by the Loan Originator to the Initial Noteholder in the Loan Schedule
and the representations, warranties and covenants contained herein, and that the
Initial Noteholder, at its option, has the right at any time to conduct a
partial or complete due diligence review on some or all of the Loans securing
such purchase, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Loan. The Initial Noteholder may underwrite
such Loans itself or engage a mutually agreed upon third party underwriter to
perform such underwriting. The Loan Originator agrees to cooperate with the
Initial Noteholder and any third party underwriter in connection with such
underwriting, including, but not limited to, providing the Initial Noteholder
and any third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Loans in the possession,
or under the control, of the Servicer. The Loan Originator further agrees that
the Loan Originator shall reimburse the Initial Noteholder for any and all
reasonable out-of-pocket costs and expenses incurred by the Initial Noteholder
in connection with the Initial Noteholder's activities pursuant to this Section
11.15 hereof (the "Due Diligence Fees"). In addition to the obligations set
forth in Section 11.17 of this Agreement, the Initial Noteholder agrees (on
behalf of itself and its Affiliates, directors, officers, employees and
representatives) to use reasonable precaution to keep confidential, in
accordance with its customary procedures for handling confidential information
and in accordance with safe and sound practices, and not to disclose to any
third party, any non-public information supplied to it or otherwise obtained by
it hereunder with respect to the Loan Originator or any of its Affiliates
(including, but not limited to, the Loan

                                       82
<PAGE>

File); provided, however, that nothing herein shall prohibit the disclosure of
any such information to the extent required by statute, rule, regulation or
judicial process; provided, further that, unless specifically prohibited by
applicable law or court order, the Initial Noteholder shall, prior to disclosure
thereof, notify the Loan Originator of any request for disclosure of any such
non-public information. The Initial Noteholder further agrees not to use any
such non-public information for any purpose unrelated to this Agreement and that
the Initial Noteholder shall not disclose such non-public information to any
third party underwriter in connection with a potential Disposition without
obtaining a written agreement from such third party underwriter to comply with
the confidentiality provisions of this Section 11.15.

      Section 11.16 No Reliance.

      Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Initial Noteholder or any of its
officers, directors, employees, agents and "control persons" as such term is
used under the Act and under the Securities Exchange Act of 1934, as amended,
for any tax, accounting, legal or other professional advice in connection with
the transactions contemplated by the Basic Documents, that each of the Loan
Originator, the Depositor and the Issuer has retained and been advised by such
tax, accounting, legal and other professionals as it has deemed necessary in
connection with the transactions contemplated by the Basic Documents and that
the Initial Noteholder makes no representation or warranty, and shall have no
liability with respect to, the tax, accounting or legal treatment or
implications relating to the transactions contemplated by the Basic Documents.

      Section 11.17 Confidential Information.

      In addition to the confidentiality requirements set forth in Section 11.15
of the Agreement, each Noteholder, as well as the Indenture Trustee and the
Disposition Agent (each of said parties singularly referred to herein as a
"Receiving Party" and collectively referred to herein as the "Receiving
Parties"), agrees to hold and treat all Confidential Information (as defined
below) in confidence and in accordance with this Section. Such Confidential
Information will not, without the prior written consent of the Servicer and the
Loan Originator, be disclosed or used by such Receiving Parties or its
subsidiaries, Affiliates, directors, officers, members, employees, agents or
controlling persons (collectively, the "Information Recipients") other than for
the purpose of making a decision to purchase or sell Notes or taking any other
permitted action under this Agreement and or any other Basic Document. Each
Receiving Party agrees to disclose Confidential Information only to its
Information Recipients who need to know it for the purpose of making a decision
to purchase or sell Notes or the taking of any other permitted action under this
Agreement and or any other Basic Document (including in connection with the
servicing of the Loans and in connection with any servicing transfers) and who
are informed by such Receiving Party of its confidential nature and who agree to
be bound by the terms of this Section 11.17. Disclosure that is not in violation
of the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act or other
applicable law by such Receiving Party of any Confidential Information at the
request of its outside auditors or governmental regulatory authorities in
connection with an examination of a Receiving Party by any such authority shall
not constitute a breach of its obligations under this Section 11.17 and shall
not require the prior consent of the Servicer and the Loan Originator.

                                       83
<PAGE>

      Each Receiving Party shall be responsible for any breach of this Section
11.17 by its Information Recipients. The Initial Noteholder may use Confidential
Information for internal due diligence purposes in connection with its analysis
of the transactions contemplated by the Basic Documents. The Disposition Agent
may disclose Confidential Information to the Disposition Participants as
required to effect Dispositions. This Section 11.17 shall terminate upon the
occurrence of an Event of Default; provided, however, that such termination
shall not relieve the Receiving Parties or their respective Information
Recipients from the obligation to comply with the Gramm-Leach-Bliley Act or
other applicable law with respect to their use or disclosure of Confidential
Information following the occurrence of an Event of Default.

      As used herein, "Confidential Information" means non-public personal
information (as defined in the Gramm-Leach-Bliley Act and its enabling
regulations issued by the Federal Trade Commission) regarding Borrowers.
Confidential Information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a
Receiving Party or any Information Recipients; (ii) was available to a Receiving
Party on a non-confidential basis prior to its disclosure to Receiving Party by
the Servicer or the Loan Originator; (iii) is required to be disclosed by a
governmental authority or related governmental agencies or as otherwise required
by law; (iv) becomes available to a Receiving Party on a non-confidential basis
from a Person other than the Servicer or the Loan Originator who, to the best
knowledge of such Receiving Party, is not otherwise bound by a confidentiality
agreement with the Servicer or the Loan Originator and is not otherwise
prohibited from transmitting the information to such Receiving Party.

      Section 11.18 Conflicts.

      Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.

      Section 11.19 Limitation on Liability.

      It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2001-1B, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Issuer, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Agreement or any other related documents.

                                       84
<PAGE>

      Section 11.20 No Agency.

      Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Initial Noteholder or the
Majority Noteholders or any of their Affiliates and the Issuer, the Depositor,
the Loan Originator or the Servicer. None of the Initial Noteholder, the
Majority Noteholders or any of their Affiliates shall be liable for any acts or
actions affected in connection with a disposition of Loans or Residual
Securities, including without limitation, any Securitization pursuant to Section
3.06, any Loan Originator Put or Servicer Call pursuant to Section 3.07 hereof
nor any Whole Loan Sale pursuant to Section 3.10 hereof.

                            (SIGNATURE PAGE FOLLOWS)

                                       85
<PAGE>

         IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the
Indenture Trustee and the Loan Originator have caused their names to be signed
by their respective officers thereunto duly authorized, as of the day and year
first above written, to this Second Amended and Restated Sale and Servicing
Agreement.

                                 OPTION ONE OWNER TRUST 2001-1B,
                                 By: Wilmington Trust Company
                                     not in its individual capacity
                                     but solely as Owner Trustee

                                 By: /s/ Mary Kay Pupillo
                                     -------------------------------
                                     Name: Mary Kay Pupillo
                                     Title: Assistant Vice President

                                 OPTION ONE LOAN WAREHOUSE
                                 CORPORATION, as Depositor

                                 By: /s/ C.R. Fulton
                                     -------------------------------
                                     Name: Charles R. Fulton
                                     Title: Assistant Secretary

                                 OPTION ONE MORTGAGE CORPORATION,
                                 as Loan Originator and Servicer

                                 By: /s/ C.R. Fulton
                                     -------------------------------
                                     Name: Charles R. Fulton
                                     Title: Vice President

                                 WELLS FARGO BANK, N.A.,
                                 as Indenture Trustee

                                 By: /s/ Darron C. Woodus
                                     -------------------------------
                                     Name: Darron C. Woodus
                                     Title: Assistant Vice President

                                       86
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.56
<SEQUENCE>16
<FILENAME>c91685exv10w56.txt
<DESCRIPTION>INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.56

================================================================================

                                    INDENTURE

                                     between

                        OPTION ONE OWNER TRUST 2001-1B
                                    as Issuer

                                       and

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              as Indenture Trustee

                            Dated as of April 1, 2001

                        OPTION ONE OWNER TRUST 2001-1B
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           Page
                                                                                           ----
<S>                                                                                        <C>
                                    ARTICLE I

                                   DEFINITIONS
Section 1.01. Definitions................................................................    2
Section 1.02. Rules of Construction......................................................    7

                                   ARTICLE II

                    GENERAL PROVISIONS WITH RESPECT TO THE NOTES
Section 2.01. Method of Issuance and Form of Notes.......................................    9
Section 2.02. Execution, Authentication, Delivery and Dating.............................    9
Section 2.03. Registration; Registration of Transfer and Exchange........................   10
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes.................................   11
Section 2.05. Persons Deemed Noteholders.................................................   11
Section 2.06. Payment of Principal and/or Interest; Defaulted Interest...................   12
Section 2.07. Cancellation...............................................................   12
Section 2.08. Conditions Precedent to the Authentication of the Notes....................   13
Section 2.09. Release of Collateral......................................................   14
Section 2.10. Additional Note Principal Balance..........................................   15
Section 2.11. Tax Treatment..............................................................   15
Section 2.12. Limitations on Transfer of the Notes.......................................   15

                                  ARTICLE III

                                   COVENANTS
Section 3.01. Payment of Principal and/or Interest.......................................   16
Section 3.02. Maintenance of Office or Agency............................................   16
Section 3.03. Money for Payments to Be Held in Trust.....................................   16
Section 3.04. Existence..................................................................   18
Section 3.05. Protection of Collateral...................................................   18
Section 3.06. Negative Covenants.........................................................   19
Section 3.07. Performance of Obligations; Servicing of Loans.............................   20
Section 3.08. Reserved...................................................................   21
Section 3.09. Annual Statement as to Compliance..........................................   21
Section 3.10. Covenants of the Issuer....................................................   21
Section 3.11. Servicer's Obligations.....................................................   22
Section 3.12. Restricted Payments........................................................   22
Section 3.13. Treatment of Notes as Debt for All Purposes................................   22
Section 3.14. Notice of Events of Default................................................   22
Section 3.15. Further Instruments and Acts...............................................   22
</TABLE>

                                       -i-
<PAGE>

<TABLE>
<S>                                                                                        <C>
                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture ...................................  22
Section 4.02. Application of Trust Money.................................................  23
Section 4.03. Repayment of Moneys Held by Paying Agent...................................  24

                                   ARTICLE V

                                   REMEDIES
Section 5.01. Events of Default..........................................................  24
Section 5.02. Acceleration of Maturity; Rescission and Annulment.........................  26
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee..  26
Section 5.04. Remedies; Priorities.......................................................  28
Section 5.05. Optional Preservation of the Collateral....................................  30
Section 5.06. Limitation of Suits........................................................  30
Section 5.07. Unconditional Rights of Noteholders to Receive Principal and/or Interest...  31
Section 5.08. Restoration of Rights and Remedies.........................................  31
Section 5.09. Rights and Remedies Cumulative.............................................  31
Section 5.10. Delay or Omission Not a Waiver.............................................  31
Section 5.11. Control by Noteholders.....................................................  32
Section 5.12. Waiver of Past Defaults....................................................  32
Section 5.13. Undertaking for Costs .....................................................  33
Section 5.14. Waiver of Stay or Extension Laws...........................................  33
Section 5.15. Action on Notes............................................................  33
Section 5.16. Performance and Enforcement of Certain Obligations ........................  33

                                   ARTICLE VI

                              THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee................................................  34
Section 6.02. Rights of Indenture Trustee................................................  35
Section 6.03. Individual Rights of Indenture Trustee ....................................  36
Section 6.04. Indenture Trustee's Disclaimer.............................................  36
Section 6.05. Notices of Default.........................................................  36
Section 6.06. Reports by Indenture Trustee to Holders....................................  36
Section 6.07. Compensation and Indemnity ................................................  36
Section 6.08. Replacement of Indenture Trustee...........................................  37
Section 6.09. Successor Indenture Trustee by Merger......................................  38
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee..........  38
Section 6.11. Eligibility................................................................  40

                                   ARTICLE VII

                          NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders.....  40
</TABLE>

                                       -ii-
<PAGE>

<TABLE>
<S>                                                                                        <C>
Section 7.02.  Preservation of Information ..............................................  40
Section 7.03.  144A Information .........................................................  40

                                        ARTICLE VIII

                            ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01.  Collection of Money ......................................................  40
Section 8.02.  Trust Accounts; Distributions ............................................  41
Section 8.03.  General Provisions Regarding Trust Accounts ..............................  41
Section 8.04.  The Paying Agent .........................................................  42
Section 8.05.  Release of Collateral ....................................................  42
Section 8.06.  Opinion of Counsel .......................................................  42

                                         ARTICLE IX

                                  SUPPLEMENTAL INDENTURES
Section 9.01.  Supplemental Indentures Without the Consent of the Noteholders ...........  43
Section 9.02.  Supplemental Indentures with Consent of Noteholders ......................  44
Section 9.03.  Execution of Supplemental Indentures .....................................  45
Section 9.04.  Effect of Supplemental Indentures ........................................  45
Section 9.05.  Reference in Notes to Supplemental Indentures ............................  45

                                         ARTICLE X

                            REDEMPTION OF NOTES; PUT OPTION
Section 10.01. Redemption ...............................................................  45
Section 10.02. Form of Redemption Notice  ...............................................  46
Section 10.03. Notes Payable on Redemption Date .........................................  46
Section 10.04. Put Option ...............................................................  46
Section 10.05. Form of Put Option Notice  ...............................................  46
Section 10.06. Notes Payable on Put Date ................................................  47

                                        ARTICLE XI

                                      MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc.................................  47
Section 11.02. Form of Documents Delivered to Indenture Trustee .........................  47
Section 11.03. Acts of Noteholders ......................................................  48
Section 11.04. Notices, etc., to Indenture Trustee and Issuer ...........................  49
Section 11.05. Notices to Noteholders; Waiver ...........................................  49
Section 11.06. Effect of Headings and Table of Contents .................................  50
Section 11.07. Successors and Assigns ...................................................  50
Section 11.08. Separability .............................................................  50
Section 11.09. Benefits of Indenture ....................................................  50
Section 11.10. Legal Holidays ...........................................................  50
Section 11.11. GOVERNING LAW ............................................................  50
</TABLE>

                                      -iii-
<PAGE>

<TABLE>
<S>                                                                                        <C>
Section 11.12. Counterparts..............................................................  50
Section 11.13. Recording of Indenture....................................................  50
Section 11.14. Trust Obligation..........................................................  51
Section 11.15. No Petition...............................................................  51
Section 11.16. Inspection................................................................  51
Section 11.17. Limitation on Liability...................................................  51
</TABLE>

                                    EXHIBITS

EXHIBIT A   - Form of Notes
EXHIBIT B-l - Form of Transferor Affidavit (144A)
EXHIBIT B-2 - Form of Transferee Affidavit (Accredited Investor)
EXHIBIT B-3 - Form of Transfer Affidavit
EXHIBIT C   - Form of Securities Legend

                                      -iv-
<PAGE>

                                    INDENTURE

            INDENTURE dated as of April 1, 2001 (the "Indenture"), between
OPTION ONE OWNER TRUST 2001-1B, a Delaware business trust, as Issuer (the
"Issuer"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture
Trustee (the "Indenture Trustee").

                                WITNESSETH THAT:

            In consideration of the mutual covenants herein contained, the
Issuer has duly authorized the execution and delivery of this Indenture to
provide for the issuance of Notes, issuable as provided in this Indenture. All
covenants and agreements made by the Issuer herein are for the benefit and
security of the Noteholders.

                                 GRANTING CLAUSE

            Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Noteholders, all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to: (i) such Loans as from time to time are
subject to the Sale and Servicing Agreement as listed in the Loan Schedule, as
the same may be amended or supplemented on each Transfer Date and by the removal
of Deleted Loans and Unqualified Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Custodial Loan
Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest
and principal with respect to each Loan received on or after the related
Transfer Cut-off Date, (iv) such assets as from time to time are identified as
Foreclosure Property, (v) such assets and funds as are from time to time
deposited in the Distribution Account, Collection Account and the Transfer
Obligation Account, including, without limitation, amounts on deposit in such
accounts that are invested in Permitted Investments, (vi) lenders' rights under
all Mortgage Insurance Policies and to any Mortgage Insurance Proceeds, (vii)
Net Liquidation Proceeds and Released Mortgaged Property Proceeds, (viii) all
right, title and interest of the Trust (but none of the obligations) in and to
the obligations of Hedging Counterparties under Hedging Instruments; (ix) all
right, title and interest of each of the Depositor, the Loan Originator and the
Trust in and under the Basic Documents including, without limitation, the
obligations of the Loan Originator under the Loan Purchase and Contribution
Agreement and/or the Master Disposition Confirmation Agreement, and all proceeds
of any of the foregoing, (x) all right, title and interest of the Issuer in and
to the Sale and Servicing Agreement, including the Issuer's right to cause the
Loan Originator to repurchase Loans from the Issuer under certain circumstances
described therein), (xi) all right, title and interest of the Trust (but none of
the obligations) in and to the Swap Agreement, (xii) all other Property of the
Trust from time to time and (xiii) all present and future claims, demands,
causes of action and choses in action in respect of any or all of the foregoing
and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms of

<PAGE>

obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").

            The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.

            The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the Noteholders may adequately and effectively be
protected.

                                    ARTICLE I

                                   DEFINITIONS

            Section 1.01. Definitions. (a) Except as otherwise specified herein,
the following terms have the respective meanings set forth below for all
purposes of this Indenture.

            "Act" has the meaning specified in Section 11.03(a) hereof.

            "Additional Note Principal Balance" As defined in the Sale and
Servicing Agreement.

            "Administration Agreement" means the Administration Agreement dated
as of April 1, 2001, between the Issuer and the Administrator.

            "Administrator" means Option One Mortgage Corporation, or any
successor Administrator under the Administration Agreement.

            "Authorized Officer" means, with respect to the Issuer, any officer
of the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).

            "Basic Documents" As defined in the Sale and Servicing Agreement.

            "Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit C to the Trust Agreement.

                                       2
<PAGE>

            "Change of Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of outstanding shares of voting stock of the Loan
Originator at any time if after giving effect to such acquisition (i) such
Person or Persons owns twenty percent (20%) or more of such outstanding voting
stock or (ii) H&R Block, Inc. does not own more than fifty percent (50%) of such
outstanding shares of voting stock.

            "Clean-up Call Date" As defined in the Sale and Servicing Agreement.

            "Closing Date" means April 27, 2001.

            "Collateral" has the meaning specified in the Granting Clause of
this Indenture.

            "Commission" means the Securities and Exchange Commission.

            "Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Indenture is located,
for note transfer purposes, at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Option One Owner Trust 2001-1B, telecopy number:
(612) 667-6282, telephone number: (800) 344-5128, and for all other purposes, at
11000 Broken Land Parkway, Columbia, Maryland 21044, Attention: Option One Owner
Trust 2001-1B, telecopy number: (410) 884-2372, telephone number: (410)
884-2000, or at such other address as the Indenture Trustee may designate from
time to time by notice to the Noteholders and the Issuer, or the principal
corporate trust office of any successor Indenture Trustee at the address
designated by such successor Indenture Trustee by notice to the Noteholders and
the Issuer.

            "Default" means any occurrence that is, or with notice or the lapse
of time or both would become, an Event of Default.

            "Depositor" shall mean Option One Loan Warehouse Corporation, a
Delaware corporation; in its capacity as depositor under the Sale and Servicing
Agreement, or any successor in interest thereto.

            "Depository Institution" means any depository institution or trust
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and (c) has
outstanding unsecured commercial paper or other short-term unsecured debt
obligations that are rated at a rating to which the Majority Noteholders consent
in writing.

            "Event of Default" has the meaning specified in Section 5.01 hereof.

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Executive Officer" means, with respect to (i) the Depositor, the
Servicer, the Loan Originator or any Affiliate of any of them, the President,
any Vice President or the Treasurer of such corporation; and with respect to any
partnership, any general partner thereof, (ii) the Note Registrar,

                                       3
<PAGE>

any Responsible Officer of the Indenture Trustee, (iii) any other corporation,
the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such entity and (iv) any partnership, any general partner thereof.

            "Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.

            "Holder" means the Person in whose name a Note is registered on the
Note Register.

            "ICA Owner" means "beneficial owner" as such term is used in Section
3(c)(l) of the Investment Company Act of 1940, as amended (other than any
persons who are excluded from such term or from the 100-beneficial owner test of
Section 3(c)(l) by law or regulations adopted by the Securities and Exchange
Commission.

            "Indenture" means this Indenture and any amendments hereto.

            "Indenture Trustee" means Wells Fargo Bank Minnesota, National
Association, a national banking association, as Indenture Trustee under this
Indenture, or any successor Indenture Trustee hereunder.

            "Issuer" means Option One Owner Trust 2001-1B.

            "Issuer Order" and "Issuer Request" mean a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.

            "Loan Originator" means Option One Mortgage Corporation, a
California corporation.

            "Majority Certificateholders" As defined in the Sale and Servicing
Agreement.

            "Maturity Date" means, with respect to the Notes, 364 days after the
commencement of the Revolving Period, provided that the Maturity Date shall
automatically be extended for an additional 364 days unless the Initial
Noteholder notifies the Depositor and the Issuer in writing at least 180 days
prior to the expiration of the initial 364 day period that it elects not to
extend the Maturity Date for such additional 364 day period.

            "Maximum Note Principal Balance" As defined in the Note Purchase
Agreement.

                                       4
<PAGE>

            "Note" means any Note authorized by and authenticated and delivered
under this Indenture.

            "Note Interest Rate" means for each Accrual Period, a per annum
interest rate equal to One-Month LIBOR for the related LIBOR Determination Date
plus the LIBOR Margin and the Additional LIBOR Margin for such Accrual Period.

            "Note Principal Balance" As defined in the Sale and Servicing
Agreement.

            "Note Purchase Agreement" means the Note Purchase Agreement dated as
of April 27, 2001, among the Issuer, the Depositor and Steamboat Funding
Corporation.

            "Note Redemption Amount" As defined in the Sale and Servicing
Agreement.

            "Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.03 hereof.

            "Noteholder" means the Person in whose name a Note is registered on
the Note Register.

            "Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01
hereof, and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer or the Administrator.

            "Opinion of Counsel" means one or more written opinions of counsel
who may, except as otherwise expressly provided in this Indenture, be an
employee of or counsel to the Issuer, and which opinion or opinions shall be
addressed to the Indenture Trustee, as Indenture Trustee, and shall comply with
any applicable requirements of Section 11.01 hereof and shall be in form and
substance satisfactory to the Initial Noteholder.

            "Outstanding" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:

            (i) Notes theretofore canceled by the Note Registrar or delivered to
      the Note Registrar for cancellation;

            (ii) Notes or portions thereof the payment for which money in the
      necessary amount has theretofore been deposited with the Indenture Trustee
      or any Paying Agent in trust for the Noteholders (provided, however, that
      if such Notes are to be redeemed, notice of such redemption has been duly
      given pursuant to this Indenture or provision for such notice satisfactory
      to the Indenture Trustee has been made); and

            (iii) Notes in exchange for or in lieu of which other Notes have
      been authenticated and delivered pursuant to this Indenture unless proof
      satisfactory to the Indenture Trustee is

                                       5
<PAGE>

      presented that any such Notes are held by a bona fide purchaser; provided,
      however, that in determining whether the Noteholders representing the
      requisite Percentage Interests of the Outstanding Notes have given any
      request, demand, authorization, direction, notice, consent or waiver
      hereunder or under any Basic Document, Notes owned by the Issuer, any
      other obligor upon the Notes, the Depositor or any Affiliate of any of the
      foregoing Persons shall be disregarded and deemed not to be Outstanding,
      except that, in determining whether the Indenture Trustee shall be
      protected in relying upon any such request, demand, authorization,
      direction, notice, consent or waiver, only Notes that the Indenture
      Trustee actually knows to be owned in such manner shall be disregarded.
      Notes owned in such manner that have been pledged in good faith may be
      regarded as Outstanding if the pledgee certifies to the Indenture Trustee
      (y) that the pledgee has the right so to act with respect to such Notes
      and (z) that the pledgee is not the Issuer, any other obligor upon the
      Notes, the Depositor or any Affiliate of any of the foregoing Persons.

            "Owner Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee under the Trust Agreement, or
any successor Owner Trustee under the Trust Agreement.

            "Paying Agent" means (unless the Paying Agent is the Servicer) a
Person that meets the eligibility standards for the Indenture Trustee specified
in Section 6.11 hereof and is authorized by the Issuer to make payments to and
distributions from the Collection Account and the Distribution Account,
including payment of principal of or interest on the Notes on behalf of the
Issuer. The initial Paying Agent shall be the Servicer, provided that if the
Servicer is terminated as Paying Agent for any reason, the Indenture Trustee
shall be the Paying Agent until another Paying Agent is appointed by the Initial
Noteholder pursuant to Section 8.04 herein. The Indenture Trustee shall be
entitled to reasonable additional compensation for assuming the role of Paying
Agent.

            "Payment Date" As defined in the Sale and Servicing Agreement.

            "Percentage Interest" means, with respect to any Note and as of any
date of determination, the percentage equal to a fraction, the numerator of
which is the principal balance of such Note as of such date of determination and
the denominator of which is the Note Principal Balance.

            "Person" As defined in the Sale and Servicing Agreement.

            "Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 hereof in lieu of a mutilated,
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.

            "Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.

            "Record Date" As defined in the Sale and Servicing Agreement.

                                       6
<PAGE>

            "Redemption Date" means in the case of a redemption of the Notes
pursuant to Section 10.01 hereof, the Payment Date specified by the Servicer
pursuant to such Section 10.01.

            "Registered Holder" means the Person in the name of which a Note is
registered on the Note Register on the applicable Record Date.

            "Required Principal Payment" As defined in the Sale and Servicing
Agreement.

            "Revolving Period" As defined in the Sale and Servicing Agreement.

            "Sale Agent" has the meaning assigned to such term in Section 5.11
hereof.

            "Sale and Servicing Agreement" means the Sale and Servicing
Agreement dated as of April 1, 2001, among the Issuer, the Depositor, the
Servicer, the Loan Originator and the Indenture Trustee on behalf of the
Noteholders.

            "Servicer" shall mean Option One Mortgage Corporation, in its
capacity as servicer under the Sale and Servicing Agreement, and any successor
servicer thereunder.

            "State" means any one of the States of the United States of America
or the District of Columbia.

            "Swap Agreement" As defined in the Sale and Servicing Agreement.

            "Swap Counterparty" As defined in the Sale and Servicing Agreement.

            "Termination Price" As defined in the Sale and Servicing Agreement.

            "Transfer Date" As defined in the Sale and Servicing Agreement.

            "Trust Agreement" means the Trust Agreement dated as of April 1,
2001, between the Depositor and the Owner Trustee.

            "Trust Certificate" has the meaning assigned to such term in Section
1.1 of the Trust Agreement.

            "Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.

            (b) Except as otherwise specified herein or as the context may
otherwise require, capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.

            Section 1.02. Rules of Construction. Unless the context otherwise
requires:

            (i) a term has the meaning assigned to it;

                                       7
<PAGE>

      (ii) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;

      (iii) "or" is not exclusive;

      (iv) "including" means including without limitation;

      (v) words in the singular include the plural and words in the plural
include the singular; and

      (vi) any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented (as provided in such agreements) and includes (in the case of
agreements or instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns.

                                       8
<PAGE>

                                   ARTICLE II

                  GENERAL PROVISIONS WITH RESPECT TO THE NOTES

            Section 2.01. Method of Issuance and Form of Notes.

            (a) The Notes shall be designated generally as the "Option One Owner
Trust 2001-1B Mortgage-Backed Notes" of the Issuer. Each Note shall bear upon
its face the designation so selected for the Notes. All Notes shall be identical
in all respects except for the denominations thereof. All Notes issued under
this Indenture shall be in all respects equally and ratably entitled to the
benefits thereof without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in accordance with the
terms and provisions of this Indenture.

            The Notes may be typewritten, printed, lithographed or engraved or
produced by any combination of these methods, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.

            Each Note shall be dated the date of its authentication.

            The terms of the Notes shall be set forth in this Indenture.

            The Notes shall be in definitive form and shall bear a legend
substantially in the form of Exhibit C attached hereto.

            Section 2.02. Execution, Authentication, Delivery and Dating. The
Notes shall be executed on behalf of the Issuer by an Authorized Officer of the
Owner Trustee or the Administrator. The signature of any such Authorized Officer
on the Notes may be manual or facsimile.

            Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Owner Trustee or the Administrator
shall bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Notes or did not hold such offices at the date of such Notes.

            Subject to the satisfaction of the conditions set forth in Section
2.08 hereof, the Indenture Trustee shall upon Issuer Order authenticate and
deliver the Notes.

            The Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer on the Closing Date shall be dated as
of such Closing Date. All other Notes that are authenticated after the Closing
Date for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issued in such denominations as may be agreed
by the Issuer and the Initial Noteholder.

            No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its

                                       9
<PAGE>

authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.

            Section 2.03. Registration; Registration of Transfer and Exchange.
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee initially shall be the "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of the Note
Registrar.

            If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Noteholders and the
principal amounts and number of the Notes.

            Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.02
hereof, the Issuer shall execute, and the Indenture Trustee shall authenticate
and the Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate Note Principal Balance.

            At the option of the Holder, Notes may be exchanged for other Notes
in any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.

            All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

            Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in the form attached to the form of Note attached as Exhibit A hereto
duly executed by the Holder thereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agents' Medallion Program
("STAMP").

            No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 9.05 hereof not involving any transfer.

                                       10
<PAGE>

            The preceding provisions of this Section 2.03 notwithstanding, the
Issuer shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.

            Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Issuer and Indenture Trustee such
security or indemnity as may reasonably be required by it to hold the Issuer and
the Indenture Trustee, as applicable, harmless, then, in the absence of notice
to the Issuer, the Note Registrar or the Indenture Trustee that such Note has
been acquired by a bona fide purchaser, an Authorized Officer of the Owner
Trustee or the Administrator on behalf of the Issuer shall execute, and upon its
written request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days shall be
due and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If, after
the delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer shall be entitled to recover such
replacement Note (or such payment) from the Person to which it was delivered or
any Person taking such replacement Note from such Person to which such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and the Issuer and the Indenture Trustee shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in
connection therewith.

            Upon the issuance of any replacement Note under this Section 2.04,
the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.

            Every replacement Note issued pursuant to this Section 2.04 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

            The provisions of this Section 2.04 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.

            Section 2.05. Persons Deemed Noteholders. Prior to due presentment
for registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee may treat the Person in the
name of which any Note is registered (as of the day of determination) as the
Noteholder for the purpose of receiving payments of principal of and

                                       11
<PAGE>

interest, if any, on such Note and for all other purposes whatsoever, whether or
not such Note be overdue, and none of the Issuer, the Indenture Trustee or any
agent of the Issuer or the Indenture Trustee shall be affected by notice to the
contrary.

            Section 2.06. Payment of Principal and/or Interest; Defaulted
Interest.

            (a) The Notes shall accrue interest at the Note Interest Rate, and
such interest shall be payable on each Payment Date, subject to Section 3.01
hereof. Any installment of interest or principal, if any, payable on any Note
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall be paid to the Person in the name of which such Note (or one
or more Predecessor Notes) is registered on the next preceding Record Date based
on the Percentage Interest represented by its respective Note, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes having a Percentage Interest of at least 20% and shall have so
notified the Paying Agent and the Indenture Trustee, and otherwise by check
mailed to the address of such Noteholder appearing in the Note Register no less
than five days preceding the related Record Date. The final installment of
principal payable with respect to such Note shall be payable as provided in
Section 2.06(b) below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03 hereof.

            (b) The principal of each Note shall be payable in installments on
each Payment Date as provided in Sections 5.01 and 5.02 of the Sale and
Servicing Agreement and Section 5.04(b) hereof. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable, if not
previously paid, on the earlier of (i) the Maturity Date, (ii) the Redemption
Date and (iii) the date on which an Event of Default shall have occurred and be
continuing, if the Indenture Trustee or the Majority Noteholders shall have
declared the Notes to be immediately due and payable in the manner provided in
Section 5.02 hereof.

            All principal payments on the Notes shall be made pro rata to the
Noteholders based on their respective Percentage Interests. The Paying Agent
shall notify the Person in the name of which a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be provided
to Noteholders as set forth in Section 10.02 hereof.

            Section 2.07. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall promptly be canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall promptly be canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this

                                       12
<PAGE>

Section 2.07, except as expressly permitted by this Indenture. All canceled
Notes may be held or disposed of by the Indenture Trustee in accordance with its
standard retention or disposal policy as in effect at the time unless the Issuer
shall direct by an Issuer Order that they be destroyed or returned to it;
provided, however, that such Issuer Order is timely and the Notes have not been
previously disposed of by the Indenture Trustee.

            Section 2.08. Conditions Precedent to the Authentication of the
Notes. The Notes may be authenticated by the Indenture Trustee upon receipt by
the Indenture Trustee of the following:

            (a) An Issuer Order authorizing authentication of such Notes by the
Indenture Trustee;

            (b) All of the items of Collateral which are to be delivered
pursuant to the Basic Documents to the Indenture Trustee or its designee by the
related Closing Date shall have been delivered;

            (c) An executed counterpart of each Basic Document;

            (d) One or more Opinions of Counsel addressed to the Indenture
Trustee to the effect that:

            (i) all conditions precedent provided for in this Indenture relating
      to the authentication of the Notes have been complied with;

            (ii) the Owner Trustee has power and authority to execute, deliver
      and perform its obligations under the Trust Agreement;

            (iii) the Issuer has been duly formed, is validly existing as a
      business trust under the laws of the State of Delaware, 12 Del. C. Section
      3801 et seq., and has power, authority and legal right to execute and
      deliver this Indenture, the Note Purchase Agreement, the Custodial
      Agreement, the Administration Agreement and the Sale and Servicing
      Agreement;

            (iv) assuming due authorization, execution and delivery hereof by
      the Indenture Trustee, the Indenture is a valid, legal and binding
      obligation of the Issuer, enforceable in accordance with its terms,
      subject to bankruptcy, insolvency, reorganization, arrangement,
      moratorium, fraudulent or preferential conveyance and other similar laws
      of general application affecting the rights of creditors generally and to
      general principles of equity (regardless of whether such enforcement is
      considered in a Proceeding in equity or at law);

            (v) the Notes, when executed and authenticated as provided herein
      and delivered against payment therefor, will be the valid, legal and
      binding obligations of the Issuer pursuant to the terms of this Indenture,
      entitled to the benefits of this Indenture, and will be enforceable in
      accordance with their terms, subject to bankruptcy, insolvency,
      reorganization, arrangement, moratorium, fraudulent or preferential
      conveyance and other similar laws of general application affecting the
      rights of creditors generally and to general principles of

                                       13
<PAGE>

      equity (regardless of whether such enforcement is considered in a
      Proceeding in equity or at law);

            (vi) Reserved;

            (vii) this Indenture is not required to be qualified under the Trust
      Indenture Act;

            (viii) no authorization, approval or consent of any governmental
      body having jurisdiction in the premises which has not been obtained by
      the Issuer is required to be obtained by the Issuer for the valid issuance
      and delivery of the Notes, except that no opinion need be expressed with
      respect to any such authorizations, approvals or consents as may be
      required under any state securities or "blue sky" laws; and

            (ix) any other matters that the Indenture Trustee may reasonably
      request.

            (e) An Officer's Certificate complying with the requirements of
      Section 11.01 hereof and stating that:

            (i) the Issuer is not in Default under this Indenture and the
      issuance of the Notes applied for will not result in any breach of any of
      the terms, conditions or provisions of, or constitute a default under, the
      Trust Agreement, any indenture, mortgage, deed of trust or other agreement
      or instrument to which the Issuer is a party or by which it is bound, or
      any order of any court or administrative agency entered in any Proceeding
      to which the Issuer is a party or by which it may be bound or to which it
      may be subject, and that all conditions precedent provided in this
      Indenture relating to the authentication and delivery of the Notes applied
      for have been complied with;

            (ii) the Issuer is the owner of all of the Loans, has not assigned
      any interest or participation in the Loans (or, if any such interest or
      participation has been assigned, it has been released) and has the right
      to Grant all of the Loans to the Indenture Trustee;

            (iii) the Issuer has Granted to the Indenture Trustee all of its
      right, title and interest in and to the Collateral, and has delivered or
      caused the same to be delivered to the Indenture Trustee; and

            (iv) all conditions precedent provided for in this Indenture
      relating to the authentication of the Notes have been complied with.

            Section 2.09. Release of Collateral. (a) Except as otherwise
provided by the terms of the Basic Documents, the Indenture Trustee shall
release the Collateral from the lien of this Indenture only upon receipt of an
Issuer Request accompanied by the written consent of the Majority Noteholders in
accordance with the procedures set forth in the Custodial Agreement. To the
extent it deems necessary, the Indenture Trustee may seek direction from the
Initial Noteholder with regard to the release of Collateral other than the
Custodial Loan File.

                                       14
<PAGE>

            (b) The Indenture Trustee shall, if requested by the Servicer,
temporarily release or cause the Custodian temporarily to release to the
Servicer the Custodial Loan File pursuant to the provisions of Section 5(b) of
the Custodial Agreement upon compliance by the Servicer with the provisions
thereof; provided, however, that the Custodian's records shall indicate the
Issuer's pledge to the Indenture Trustee under the Indenture.

            Section 2.10. Additional Note Principal Balance. In the event of
payment of Additional Note Principal Balance by the Noteholders as provided in
Section 2.01(c) of the Sale and Servicing Agreement, each Noteholder shall, and
is hereby authorized to, record on the schedule attached to its Note the date
and amount of any Additional Note Principal Balance advanced by it, and each
repayment thereof; provided that failure to make any such recordation on such
schedule or any error in such schedule shall not adversely affect any
Noteholder's rights with respect to its Additional Note Principal Balance and
its right to receive interest payments in respect of the Additional Note
Principal Balance held by such Noteholder.

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture Trustee and the Issuer; provided that failure by a
Noteholder to make such recordation on its Note or any error in such notation
shall not adversely affect any Noteholder's rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in
respect thereof.

            Section 2.11. Tax Treatment. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that for all
purposes, including federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Collateral. The Issuer, by entering into this Indenture, and each
Noteholder, by its acceptance of a Note, agree to treat the Notes for all
purposes, including federal, state and local income, single business and
franchise tax purposes, as indebtedness of the Issuer. The Indenture Trustee
will have no responsibility for filing or preparing any tax returns.

            Section 2.12. Limitations on Transfer of the Notes.

            (a) The Notes have not been and will not be registered under the
Securities Act and will not be listed on any exchange. No transfer of a Note
shall be made unless such transfer is made pursuant to an effective registration
statement under the Securities Act and all applicable state securities laws or
is exempt from the registration requirements under the Securities Act and such
state securities laws. In order to assure compliance with the Securities Act and
state securities laws, any transfer of a Note shall be made (A) in reliance on
Rule 144A under the Securities Act, in which case, the Indenture Trustee shall
require that the transferor deliver a certification substantially in the form of
Exhibit B-1 hereto and that the transferee deliver a certification substantially
in the form of Exhibit B-3 hereto, or (B) to an institutional "accredited
investor" within the meaning of Rule 01(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act that is not a "qualified institutional buyer," in which
case the Indenture Trustee shall require that the transferee deliver a
certification ***stantially in the form of Exhibit B-2 hereto. The Indenture
Trustee shall not make any transfer ***re-registration of the Notes if after
such transfer or re-registration, there would be more than five ***teholders.
Each Noteholder shall, by its acceptance of a Note, be deemed to have
represented and ***ranted that the number of ICA Owners with respect to all of
its Notes shall not exceed four.

                                       15
<PAGE>


            (b) The Note Registrar shall not register the transfer of any Note
unless the Indenture Trustee has received a certificate from the transferee to
the effect that either (i) the transferee is not an employee benefit plan or
other retirement plan or arrangement subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended (each, a "Plan"), and is not acting on
behalf of or investing the assets of a Plan or (ii) if the transferee is a Plan
or is acting on behalf of or investing the assets of a Plan, the conditions for
exemptive relief under at least one of the following prohibited transaction
class exemptions have been satisfied: Prohibited Transaction Class Exemption
("PTCE") 96-23 (relating to transactions effected by an "in-house asset
manager"), PTCE 95-60 (relating to transactions involving insurance company
general accounts), PTCE 91-38 (relating to transactions involving bank
collective investment funds), PTCE 90-1 (relating to transactions involving
insurance company pooled separate accounts) and PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager").

                                   ARTICLE III

                                    COVENANTS

            Section 3.01. Payment of Principal and/or Interest. The Issuer will
duly and punctually pay (or will cause to be paid duly and punctually) the
principal of and interest on the Notes in accordance with the terms of the
Notes, this Indenture and the Sale and Servicing Agreement. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Issuer
to such Noteholder for all purposes of this Indenture. The Notes shall be
non-recourse obligations of the Issuer and shall be limited in right of payment
to amounts available from the Collateral, as provided in this Indenture. The
Issuer shall not otherwise be liable for payments on the Notes. If any other
provision of this Indenture shall be deemed to conflict with the provisions of
this Section 3.01, the provisions of this Section 3.01 shall control.

            Section 3.02. Maintenance of Office or Agency. The Indenture Trustee
shall maintain at the Corporate Trust Office an office or agency where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Indenture Trustee shall give prompt written notice to the Issuer of
the location, and of any change in the location, of any such office or agency.

            Section 3.03. Money for Payments to Be Held in Trust. As provided in
Section 8.02(a) and (b) hereof, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Distribution Account pursuant to Section 8.02(c) hereof shall be made on behalf
of the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Distribution Account for payments of Notes shall be paid over
to the Issuer except as provided in this Section 3.03.

            Any Paying Agent shall be appointed by the Initial Noteholder with
written notice thereof to the Indenture Trustee. The Issuer shall not appoint
any Paying Agent (other than the Indenture Trustee or Servicer) which is not, at
the time of such appointment, a Depository Institution.

                                       16
<PAGE>

            The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:

            (i) hold all sums held by it for the payment of amounts due with
      respect to the Notes in trust for the benefit of the Persons entitled
      thereto until such sums shall be paid to such Persons or otherwise
      disposed of as herein provided and pay such sums to such Persons as herein
      provided;

            (ii) give the Indenture Trustee notice of any Default by the Issuer
      (or any other obligor upon the Notes) of which it has actual knowledge in
      the making of any payment required to be made with respect to the Notes;

            (iii) at any time during the continuance of any such Default, upon
      the written request of the Majority Noteholders or the Indenture Trustee,
      forthwith pay to the Indenture Trustee all sums so held in trust by such
      Paying Agent;

            (iv) immediately resign as a Paying Agent and forthwith pay to the
      Indenture Trustee all sums held by it in trust for the payment of Notes if
      at any time it ceases to meet the standards required to be met by a Paying
      Agent at the time of its appointment; and

            (v) comply with all requirements of the Code with respect to the
      withholding from any payments made by it on any Notes of any applicable
      withholding taxes imposed thereon and with respect to any applicable
      reporting requirements in connection therewith; provided, however, that
      with respect to withholding and reporting requirements applicable to
      original issue discount (if any) on the Notes, the Issuer shall have first
      provided the calculations pertaining thereto to the Indenture Trustee.

            The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.

            Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
provided, however, that the Indenture Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense and direction of the
Issuer cause to be published, once in a newspaper of general circulation in the
City of New York customarily published in the English

                                       17
<PAGE>

language on each Business Day, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Indenture Trustee shall also adopt and employ
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Noteholders whose Notes have
been called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed at the last address of record
for each such Noteholder determinable from the records of the Indenture Trustee
or of any Paying Agent. Any costs and expenses of the Indenture Trustee and the
Paying Agent incurred in the holding of such funds shall be charged against such
funds. Monies so held shall not bear interest.

            Section 3.04. Existence. (a) Subject to subparagraph (b) of this
Section 3.04, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other State or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and the Collateral. The Issuer shall comply in all respects with the
covenants contained in the Trust Agreement, including without limitation, the
"special purpose entity" set forth in Section 4.1 thereof.

            (b) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.

            (c) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.

            Section 3.05. Protection of Collateral. The Issuer will from time to
time execute and deliver all such reasonable supplements and amendments hereto
and all such financing statements, continuation statements, instruments of
further assurance and other instruments, and will take such other action
necessary or advisable to:

            (i) provide further assurance with respect to the Grant of all or
      any portion of the Collateral;

            (ii) maintain or preserve the lien and security interest (and the
      priority thereof) of this Indenture or carry out more effectively the
      purposes hereof;

            (iii) perfect, publish notice of or protect the validity of any
      Grant made or to be made by this Indenture;

            (iv) enforce any rights with respect to the Collateral; and

                                       18
<PAGE>

            (v) preserve and defend title to the Collateral and the rights of
      the Indenture Trustee and the Noteholders in such Collateral against the
      claims of all Persons and parties.

            The Issuer hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.

            Section 3.06. Negative Covenants. Without the written consent of the
Majority Noteholders, so long as any Notes are Outstanding, the Issuer shall
not:

            (i) except as expressly permitted by the Basic Documents, sell,
      transfer, exchange or otherwise dispose of any of the properties or assets
      of the Issuer, including those included in any part of the Trust Estate,
      unless directed to do so by the Noteholders as permitted herein;

            (ii) claim any credit on, or make any deduction from the principal
      or interest payable in respect of, the Notes (other than amounts properly
      withheld from such payments under the Code) or assert any claim against
      any present or former Noteholder by reason of the payment of the taxes
      levied or assessed upon any part of the Trust Estate;

            (iii) engage in any business or activity other than as expressly
      permitted by this Indenture and the other Basic Documents, other than in
      connection with, or relating to, the issuance of Notes pursuant to this
      Indenture, or amend this Indenture as in effect on the Closing Date other
      than in accordance with Article IX hereof;

            (iv) issue any debt obligations except under this Indenture;

            (v) incur or assume any indebtedness or guaranty any indebtedness of
      any Person, except for such indebtedness as may be incurred by the Issuer
      in connection with the issuance of the Notes pursuant to this Indenture;

            (vi) dissolve or liquidate in whole or in part or merge or
      consolidate with any other Person;

            (vii) (A) permit the validity or effectiveness of this Indenture to
      be impaired, or permit the lien of this Indenture to be amended,
      hypothecated, subordinated, terminated or discharged, or permit any Person
      to be released from any covenants or obligations with respect to the Notes
      except as may expressly be permitted hereby, (B) except as provided in the
      Basic Documents, 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 Trust Estate or any part thereof or any
      interest therein or the proceeds thereof (other than tax liens, mechanics'
      liens and other liens that arise by operation of law, in each case, on any
      Mortgaged Property and arising solely as a result of an action or omission
      of the related Borrowers) or (C) except as provided in the Basic
      Documents, permit any Person other than itself, the Owner Trustee and the
      Noteholders to have any right, title or interest in the Trust Estate;

                                       19
<PAGE>

            (viii) remove the Administrator without the prior written consent of
      the Majority Noteholders; or

            (ix) take any other action or fail to take any action which may
      cause the Trust to be taxable as (a) an association pursuant to Section
      7701 of the Code and the corresponding regulations, or (b) as a taxable
      mortgage pool pursuant to Section 7701(i) of the Code.

            Section 3.07. Performance of Obligations; Servicing of Loans. (a)
The Issuer will not take any action and will use its best efforts not to permit
any action to be taken by others that would release any Person from any of such
Person's material covenants or obligations under any instrument or agreement
included in the Collateral or that would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any such instrument or agreement, except as expressly provided
in the Basic Documents or such other instrument or agreement.

            (b) The Issuer may contract with or otherwise obtain the assistance
of other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer and the Administrator to assist the Issuer in performing its duties
under this Indenture.

            (c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, in the Basic Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
and the Majority Noteholders.

            (d) If the Issuer shall have knowledge of the occurrence of a
Servicing Event of Default, the Issuer shall promptly notify the Indenture
Trustee and the Initial Noteholder thereof, and shall specify in such notice the
action, if any, the Issuer is taking with respect to such default. If a
Servicing Event of Default shall arise from the failure of the Servicer to
perform any of its duties or obligations under the Sale and Servicing Agreement
with respect to the Loans, the Issuer shall take all reasonable steps available
to it to remedy such failure.

            (e) Reserved.

                                       20
<PAGE>

            (f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee. As soon as a successor servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such successor servicer.

            (g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee, amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of any Collateral
(except to the extent otherwise permitted by the Sale and Servicing Agreement)
or the Basic Documents, or waive timely performance or observance by the
Servicer or the Depositor under the Sale and Servicing Agreement; and (ii) that
any such amendment shall not (A) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Noteholders or (B) reduce the aforesaid percentage of the
Notes that is required to consent to any such amendment, without the consent of
Noteholders evidencing 100% Percentage Interests of the Outstanding Notes. If
any such amendment, modification, supplement or waiver shall so be consented to
by the Indenture Trustee, the Issuer agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as the
Indenture Trustee may deem necessary or appropriate in the circumstances.

            Section 3.08. Reserved.

            Section 3.09. Annual Statement as to Compliance. So long as the
Notes are Outstanding, the Issuer will deliver to the Indenture Trustee, within
120 days after the end of each fiscal year of the Issuer (commencing with the
fiscal year beginning on May 1, 2001), an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that:

            (i) a review of the activities of the Issuer during such year and of
      its performance under this Indenture has been made under such Authorized
      Officer's supervision; and

            (ii) to the best of such Authorized Officer's knowledge, based on
      such review, the Issuer has materially complied with all conditions and
      covenants under this Indenture throughout such year, or, if there has been
      a default in its compliance with any such condition or covenant,
      specifying each such default known to such Authorized Officer and the
      nature and status thereof.

            Section 3.10. Covenants of the Issuer. All covenants of the Issuer
in this Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations, warranties or obligations of the Issuer hereunder, as to all of
which the parties hereto agree to look solely to the property of the Issuer.

                                       21
<PAGE>

            Section 3.11. Servicer's Obligations. The Issuer shall cause the
Servicer to comply with the Sale and Servicing Agreement.

            Section 3.12. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee and the
Noteholders and the holders of the Trust Certificates as contemplated by, and to
the extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement and (y) payments to the Indenture Trustee
pursuant to Section 1(a)(ii) of the Administration Agreement. The Issuer will
not, directly or indirectly, make or cause to be made payments to or
distributions from the Distribution Account except in accordance with this
Indenture and the Basic Documents.

            Section 3.13. Treatment of Notes as Debt for All Purposes. The
Issuer shall, and shall cause the Administrator to, treat the Notes as
indebtedness for all purposes.

            Section 3.14. Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Initial Noteholder prompt written notice of each Event
of Default hereunder each default on the part of the Servicer or the Loan
Originator of their respective obligations under any of the Basic Documents.

            Section 3.15. Further Instruments and Acts. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.

                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE

            Section 4.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to the Notes (except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal thereof and interest thereon, (iv) Sections 3.03,
3.04 and 3.10 hereof, (v) the rights, obligations and immunities of the
Indenture Trustee hereunder (including the rights of the Indenture Trustee under
Section 6.07 hereof and the obligations of the Indenture Trustee under Section
4.02 hereof) and (vi) the rights of Noteholders as beneficiaries hereof with
respect to the property so deposited with the Indenture Trustee payable to all
or any of them), and the Indenture Trustee, on demand of and at the expense of
the Issuer, shall execute proper instruments satisfactory to it, and prepared
and delivered to it by the Issuer, acknowledging satisfaction and discharge of
this Indenture with respect to the Notes, when all of the following have
occurred:

                                       22
<PAGE>

            (A)   either

                  (1)   all Notes theretofore authenticated and delivered (other
                        than (i) Notes that have been destroyed, lost or stolen
                        and that have been replaced or paid as provided in
                        Section 2.04 hereof and (ii) Notes for the payment of
                        which money has theretofore been deposited in trust or
                        segregated and held in trust by the Issuer and
                        thereafter repaid to the Issuer or discharged from such
                        trust, as provided in Section 3.03 hereof) shall have
                        been delivered to the Indenture Trustee for
                        cancellation; or

                  (2)   all Notes not theretofore delivered to the Indenture
                        Trustee for cancellation

                        a.    shall have become due and payable, or

                        b.    are to be called for redemption within one year
                              under arrangements satisfactory to the Indenture
                              Trustee for the giving of notice of redemption by
                              the Indenture Trustee in the name, and at the
                              expense, of the Issuer,

                        c.    and the Issuer, in the case of clause a. or b.
                              above, has irrevocably deposited or caused
                              irrevocably to be deposited with the Indenture
                              Trustee cash or direct obligations of or
                              obligations guaranteed by the United States of
                              America (which will mature prior to the date such,
                              amounts are payable), in trust for such purpose,
                              in an amount sufficient to pay and discharge the
                              entire indebtedness on such Notes not theretofore
                              delivered to the Indenture Trustee for
                              cancellation when due to the applicable Maturity
                              Date or the Redemption Date (if Notes shall have
                              been called for redemption pursuant to Section
                              10.01 hereof), as the case may be; and

            (B) the latest of (a) the payment in full of all outstanding
obligations under the Notes, (b) the payment in full of all unpaid Trust Fees
and Expenses and (c) the date on which the Issuer has paid or caused to be paid
all other sums payable hereunder by the Issuer; and

            (C) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each meeting the applicable
requirements of Section 11.01 hereof and, subject to Section 11.02 hereof, each
stating that all conditions precedent herein provided for, relating to the
satisfaction and discharge of this Indenture with respect to the Notes, have
been complied with.

            Section 4.02. Application of Trust Money. All moneys deposited with
the Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or

                                       23
<PAGE>

through any Paying Agent, as the Indenture Trustee may determine, to the
Noteholders for the payment or redemption of which such moneys have been
deposited with the Indenture Trustee, of all sums due and to become due thereon
for principal and/or interest; but such moneys need not be segregated from other
funds except to the extent required herein or in the Sale and Servicing
Agreement or required by law.

            Section 4.03. Repayment of Moneys Held by Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Paying Agent other than the Indenture
Trustee under the provisions of this Indenture with respect to such Notes shall,
upon demand of the Issuer, be paid to the Indenture Trustee to be held and
applied according to Section 3.03 hereof and thereupon such Paying Agent shall
be released from all further liability with respect to such moneys.

                                    ARTICLE V

                                    REMEDIES

            Section 5.01. Events of Default. "Event of Default." wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

            (a) notwithstanding any insufficiency of funds in the Distribution
Account for of on the related Payment Date, when the same becomes due and
payable; or

            (b) notwithstanding any insufficiency of funds in the Distribution
Account for payment thereof on the related Payment Date, default in the payment
of any installment of the Required Principal Payment or the
Overcollateralization Shortfall of any Note (i) on any Payment Date or (ii) on
the Maturity Date, or, to the extent that there are funds available in the
Distribution Account therefor, default in the payment of any installment of the
principal of any Note from such available funds, as a result of the occurrence
of a Rapid Amortization Trigger; or

            (c) the occurrence of a Servicer Event of Default; or

            (d) default in the observance or performance of any covenant or
agreement of the Issuer made in any Basic Document to which it is a party (other
than a covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section 5.01 specifically dealt with), or any
representation or warranty of the Issuer made in any Basic Document to which it
is a party or in any certificate or other writing delivered pursuant thereto or
in connection therewith proving to have been incorrect in any material respect
as of the time when the same shall have been made, and such default shall
continue or not be cured, or the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been given,
by registered or certified mail, to the Issuer by the Indenture Trustee, or to
the Issuer, the Depositor and the Indenture Trustee by Noteholders evidencing at
least 25% Percentage Interests of the Outstanding Notes, a written

                                       24
<PAGE>

notice specifying such default or incorrect representation or warranty and
requiring it to be remedied and stating that such notice is a notice of Default
hereunder, or

            (e) default in the observance or performance of any covenant or
agreement of the Depositor made in any Basic Document to which it is a party or
any representation or warranty of the Depositor (except as otherwise expressly
provided in the Basic Documents with respect to representations and warranties
regarding the Loans) or Loan Originator made in any Basic Document to which they
are a party, proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue or not
be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated or
otherwise cured, for a period of 30 days (or five days in the case of the
failure of the Loan Originator to make a payment in respect of the Transfer
Obligation) after there shall have been given, by registered or certified mail,
to the Issuer and the Depositor by the Indenture Trustee, or to the Issuer, the
Depositor and the Indenture Trustee by Noteholders evidencing at least 25%
Percentage Interests of the Outstanding Notes, a written notice specifying such
Default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or

            (f) default in the observance or performance of any covenant or
agreement of the Loan Originator made in any repurchase agreement, loan and
security agreement or other similar credit facility agreement entered into by
the Loan Originator and any third party for borrowed funds in excess of
$10,000,000, including any default which entitles any party to require
acceleration or prepayment of any indebtedness thereunder; or

            (g) the filing of a decree or order for relief by a court having
jurisdiction over the Issuer, the Depositor or the Loan Originator or all or
substantially all of the Collateral in an involuntary case under any applicable
federal or state bankruptcy, insolvency or other similar law now or hereafter in
effect, or the appointing of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Issuer, the Depositor or the
Loan Originator or for all or substantially all of the Collateral, or the
ordering of the winding-up or liquidation of the affairs of the Issuer, the
Depositor or the Loan Originator, and such decree or order shall remain unstayed
and in effect for a period of 60 consecutive days; or

            (h) the commencement by the Issuer, the Depositor or the Loan
Originator 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
the Issuer, the Depositor or the Loan Originator to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer, the
Depositor or the Loan Originator or for any substantial part of the Collateral,
or the making by the Issuer, the Depositor or the Loan Originator of any general
assignment for the benefit of creditors, or the failure by the Issuer, the
Depositor or the Loan Originator generally to pay its respective debts as such
debts become due, or the taking of any action by the Issuer, the Depositor or
the Loan Originator in furtherance of any of the foregoing; or

            (i) a Change of Control of the Loan Originator; or

                                       25
<PAGE>

            (j) the Notes shall be Outstanding on the day after the end of the
Revolving Period.

            The Issuer shall deliver to the Indenture Trustee, within five days
after the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clauses (d) or (e) above, the status of
such event and what action the Issuer or the Depositor, as applicable, is taking
or proposes to take with respect thereto.

            Section 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee, at the direction or upon the prior written consent of the
Majority Noteholders, may declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Noteholders), and upon any such declaration, the unpaid principal
amount of such Notes, together with accrued and unpaid interest thereon through
the date of acceleration, shall become immediately due and payable.

            At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Majority Noteholders, by written notice to the Issuer and the Indenture Trustee,
may rescind and annul such declaration and its consequences if:

            (a) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:

      1.    all payments of principal of and/or interest on all Notes and all
            other amounts that would then be due hereunder or upon such Notes if
            the Event of Default giving rise to such acceleration had not
            occurred; and

      2.    all sums paid or advanced by the Indenture Trustee hereunder and the
            reasonable compensation, expenses, disbursements and advances of the
            Indenture Trustee and its agents and counsel; and

            (b) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration, have
been cured or waived as provided in Section 5.12 hereof. No such rescission
shall affect any subsequent default or impair any right consequent thereto.

            Section 5.03. Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee. (a) The Issuer covenants that if (i) default is made in
the payment of any interest on any Note when the same becomes due and payable,
and such default continues for a period of five days, or (ii) default is made in
the payment of the principal of or any installment of the principal of any Note
when the same becomes due and payable, the Issuer will, upon demand of the
Indenture Trustee, pay to the Indenture Trustee, for the benefit of the
Noteholders, the whole amount then due and payable on such Notes for principal
and/or interest, with interest upon the overdue principal and, to the extent
payment at such rate of interest shall be legally enforceable, upon overdue
installments

                                       26
<PAGE>

of interest at the rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.

            (b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee shall at the direction of the Majority
Noteholders, subject to Section 5.06(c) institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Issuer or other
obligor upon such Notes and collect in the manner provided by law out of the
property of the Issuer or other obligor upon such Notes, wherever situated, the
moneys adjudged or decreed to be payable.

            (c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall at the direction of the Majority Noteholders, as more particularly
provided in Section 5.04 hereof, subject to Section 5.06(c) hereof, proceed to
protect and enforce its rights and the rights of the Noteholders by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.

            (d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral, Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section 5.03, shall be
entitled and empowered by intervention in such Proceedings or otherwise:

            (i) to file and prove a claim or claims for the whole amount of
      principal and/or interest owing and unpaid in respect of the Notes and to
      file such other papers or documents as may be necessary or advisable in
      order to have the claims of the Indenture Trustee (including any claim for
      reasonable compensation to the Indenture Trustee, each predecessor
      Indenture Trustee, and its agents, attorneys and counsel, and for
      reimbursement of all expenses and liabilities incurred, and all advances
      made, by the Indenture Trustee and each predecessor Indenture Trustee,
      except as a result of negligence or bad faith) and of the Noteholders
      allowed in such Proceedings;

            (ii) unless prohibited by applicable law and regulations, to vote on
      behalf of the Noteholders in any election of a trustee, a standby trustee
      or Person performing similar functions in any such Proceedings;

                                       27
<PAGE>

            (iii) to collect and receive any moneys or other property payable or
      deliverable on any such claims and to distribute all amounts received with
      respect to the claims of the Noteholders and the Indenture Trustee on
      their behalf; and

            (iv) to file such proofs of claim and other papers or documents as
      may be necessary or advisable in order to have the claims of the Indenture
      Trustee or the Noteholders allowed in any judicial proceedings relative to
      the Issuer, its creditors and its property; and any trustee, receiver,
      liquidator, custodian or other similar official in any such Proceeding is
      hereby authorized by each of such Noteholders to make payments to the
      Indenture Trustee and, in the event that the Indenture Trustee shall
      consent to the making of payments directly to such Noteholders, to pay to
      the Indenture Trustee such amounts as shall be sufficient to cover
      reasonable compensation to the Indenture Trustee, each predecessor
      Indenture Trustee and their respective agents, attorneys and counsel, and
      all other expenses and liabilities incurred and all advances made by the
      Indenture Trustee and each predecessor Indenture Trustee except as a
      result of negligence or bad faith.

            (e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.

            (f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, shall be for the ratable benefit of the Noteholders.

            (g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make
any Noteholder a party to any such Proceedings.

            Section 5.04. Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee, at the direction of the
Majority Noteholders shall, do one or more of the following (subject to Section
5.05 hereof):

            (i) institute Proceedings in its own name and as trustee of an
      express trust for the collection of all amounts then payable on the Notes
      or under this Indenture with respect thereto, whether by declaration or
      otherwise, enforce any judgment obtained, and collect from the Issuer and
      any other obligor upon such Notes moneys adjudged due;

                                       28
<PAGE>

            (ii) institute Proceedings from time to time for the complete or
      partial foreclosure of this Indenture with respect to the Collateral;

            (iii) exercise any remedies of a secured party under the UCC and
      take any other appropriate action to protect and enforce the rights and
      remedies of the Indenture Trustee or the Noteholders; and

            (iv) sell the Collateral or any portion thereof or rights or
      interest therein in a commercially reasonable manner, at one or more
      public or private sales called and conducted in any manner permitted by
      law; provided, however, that the Indenture Trustee may not sell or
      otherwise liquidate the Collateral following an Event of Default, unless
      (A) the Holders of 100% Percentage Interests of the Outstanding Notes
      consent thereto, (B) the proceeds of such sale or liquidation
      distributable to the Noteholders are sufficient to discharge in full all
      amounts then due and unpaid upon such Notes for principal and/or interest
      or (C) the Indenture Trustee determines that the Collateral will not
      continue to provide sufficient funds for the payment of principal of and
      interest on the Notes as they would have become due if the Notes had not
      been declared due and payable, and the Indenture Trustee obtains the
      consent of Holders of not less than 66-2/3% Percentage Interests of the
      Outstanding Notes. In determining such sufficiency or insufficiency with
      respect to clause (B) and (C) of this subsection (a)(iv), the Indenture
      Trustee may, but need not, obtain and rely upon an opinion of an
      Independent investment banking or accounting firm of national reputation
      as to the feasibility of such proposed action and as to the sufficiency of
      the Collateral for such purpose.

            (b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:

            FIRST: in the following order of priority: (a) to the Indenture
      Trustee, an amount equal to all unreimbursed Indenture Trustee Fees and
      indemnities and any other amounts payable to the Indenture Trustee
      pursuant to the Basic Documents and to the Indenture Trustee or Sale
      Agents, as applicable, all reasonable fees and expenses incurred by them
      and their agents and representatives in connection with the enforcement of
      the remedies provided for in this Article V, (b) to the Custodian, an
      amount equal to all unpaid Custodian Fees and indemnities and any other
      amounts payable to the Custodian pursuant to the Basic Documents, (g) to
      the Servicer, an amount equal to (i) all unreimbursed Servicing
      Compensation and (ii) all unreimbursed Nonrecoverable Servicing Advances,
      and (d) to the Servicer, in trust for the Owner Trustee, an amount equal
      to the Owner Trustee Fee and all unpaid Owner Trustee Fees;

            SECOND: the Hedge Funding Requirement to the appropriate Hedging
      Counterparties;

            THIRD: to the Noteholders pro rata, all amounts in respect of
      interest due and owing under the Notes;

                                       29
<PAGE>

            FOURTH: to the Noteholders pro rata, all amounts in respect of
      unpaid principal of the Notes;

            FIFTH: to the Swap Counterparty, all amounts required to be paid by
      the Issuer under the Swap Agreement;

            SIXTH: to the Purchaser or any other Indemnified Party (as each such
      term is defined in the Note Purchase Agreement), amounts in respect of
      Issuer/Depositor Indemnities (as defined in the Trust Agreement) and to
      the Initial Noteholder, amounts in respect of Due Diligence Fees (as set
      forth in Section 11.15 of the Sale and Servicing Agreement) until such
      amounts are paid in full;

            SEVENTH: to the Owner Trustee, for any amounts to be distributed pro
      rata to the holders of the Trust Certificates pursuant to the Trust
      Agreement.

            The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section 5.04. At least 15
days before such record date, the Indenture Trustee shall mail to each
Noteholder and the Issuer a notice that states the record date, the payment date
and the amount to be paid.

            Section 5.05. Optional Preservation of the Collateral. If the Notes
have been declared to be due and payable under Section 5.02 hereof following an
Event of Default and such declaration and its consequences have not been
rescinded and annulled, the Indenture Trustee may, but need not, elect to
maintain possession of the Collateral. It is the desire of the parties hereto
and the Noteholders that there be at all times sufficient funds for the payment
of principal of and interest on the Notes, and the Indenture Trustee shall take
such desire into account when determining whether or not to maintain possession
of the Collateral. In determining whether to maintain possession of the
Collateral, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.

            Section 5.06. Limitation of Suits. No Noteholder shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:

            (a) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;

            (b) the Noteholders evidencing not less than 25% Percentage
Interests of the Outstanding Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;

            (c) such Noteholder or Noteholders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;

                                       30
<PAGE>

            (d) the Indenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such Proceeding;
and

            (e) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 30-day period by the Majority
Noteholders.

            It is understood and intended that no one or more Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Noteholders or to obtain or to seek to obtain priority or preference over
any other Noteholders or to enforce any right under this Indenture, except in
the manner herein provided.

            In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders,
neither of which evidences Percentage Interests of the Outstanding Notes greater
than 50%, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture and shall have no obligation or liability to any such group of
Noteholders for such action or inaction.

            Section 5.07. Unconditional Rights of Noteholders to Receive
Principal and/or Interest. Notwithstanding any other provisions in this
Indenture, any Noteholder shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the applicable Maturity Date thereof expressed in such
Note or in this Indenture (or, in the case of redemption, on or after the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such right shall not be impaired without the consent of such Noteholder.

            Section 5.08. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.

            Section 5.09. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

            Section 5.10. Delay or Omission Not a Waiver. No delay or omission
of the Indenture Trustee or any Noteholder to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or

                                       31
<PAGE>

Event of Default or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Indenture Trustee or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee or by the Noteholders, as the case may be.

            Section 5.11. Control by Noteholders. The Majority Noteholders shall
have the right to direct the time, method and place of conducting any Proceeding
for any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided,
however, that:

            (a) such direction shall not be in conflict with any rule of law or
with this Indenture;

            (b) subject to the express terms of Section 5.04(a)(iv) hereof, any
direction to the Indenture Trustee to sell or liquidate the Collateral shall be
by Holders of Notes representing Percentage Interests of the Outstanding Notes
of not less than 100%;

            (c) if the conditions set forth in Section 5.05 hereof have been
satisfied and the Indenture Trustee elects to retain the Collateral pursuant to
such Section, then any direction to the Indenture Trustee by Holders of Notes
representing Percentage Interests of the Outstanding Notes of less than 100% to
sell or liquidate the Collateral shall be of no force and effect; and

            (d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.

            In connection with any sale of the Collateral in accordance with
paragraph (c) above, the Majority Noteholders may, in their sole discretion
appoint agents to effect the sale of the Collateral (such agents, "Sale
Agents"), which Sale Agents may be Affiliates of any Noteholder. The Sale Agents
shall be entitled to reasonable compensation in connection with such activities
from the proceeds of such sale.

            Notwithstanding the rights of the Noteholders set forth in this
Section 5.11, subject to Section 6.01 hereof, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.

            Section 5.12. Waiver of Past Defaults. The Majority Noteholders may
waive any past Default or Event of Default and its consequences, except a
Default (a) in the payment of principal of or interest on any of the Notes or
(b) in respect of a covenant or provision hereof that cannot be modified or
amended without the consent of each Noteholder. In the case of any such waiver,
the Issuer, the Indenture Trustee and Noteholders shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereto.

            Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have

                                       32
<PAGE>

been cured and not to have occurred, for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereto.

            Section 5.13. Undertaking for Costs. All parties to this Indenture
agree, and each Noteholder by such Noteholder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate Percentage Interests of the
Outstanding Notes of more than 10% or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).

            Section 5.14. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.

            Section 5.15. Action on Notes. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Collateral or
upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b) hereof.

            Section 5.16. Performance and Enforcement of Certain Obligations.

            (a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense, the Issuer shall take all such lawful action
as the Indenture Trustee may request to compel or secure the performance and
observance by the Loan Originator and the Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement or the Loan Purchase Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Loan Originator or the Servicer thereunder

                                       33
<PAGE>

and the institution of legal or administrative actions or proceedings to compel
or secure performance by the Loan Originator or the Servicer of each of their
obligations under the Sale and Servicing Agreement and the Loan Purchase
Agreement.

            (b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in writing
or by telephone, confirmed in writing promptly thereafter) of the Majority
Noteholders shall, subject to Section 5.06(c) exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Loan Originator or the
Servicer under or in connection with the Sale and Servicing Agreement or the
Loan Purchase Agreement, including the right or power to take any action to
compel or secure performance or observance by the Loan Originator or the
Servicer, as the case may be, of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension, or waiver under the Sale and Servicing Agreement, and any right of
the Issuer to take such action shall be suspended.

                                   ARTICLE VI

                              THE INDENTURE TRUSTEE

            Section 6.01. Duties of Indenture Trustee, (a) If an Event of
Default has occurred and is continuing, the Indenture Trustee shall exercise the
rights and powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.

            (b) Except during the continuance of an Event of Default:

            (i) the Indenture Trustee shall undertake to perform such duties and
      only such duties as are specifically set forth in this Indenture and no
      implied covenants or obligations shall be read into this Indenture against
      the Indenture Trustee; and

            (ii) in the absence of bad faith on its part, the Indenture Trustee
      may conclusively rely, as to the truth of the statements and the
      correctness of the opinions expressed therein, upon certificates or
      opinions furnished to the Indenture Trustee and conforming to the
      requirements of this Indenture; provided, however, that the Indenture
      Trustee shall examine the certificates and opinions to determine whether
      or not they conform to the requirements of this Indenture to the extent
      specifically set forth herein.

            (c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:

            (i) this paragraph does not limit the effect of paragraph (b) of
      this Section 6.01;

            (ii) the Indenture Trustee shall not be liable for any error of
      judgment made in good faith by a Responsible Officer unless it is proved
      that the Indenture Trustee was negligent in ascertaining the pertinent
      facts;

                                       34
<PAGE>

            (iii) the Indenture Trustee shall not be liable with respect to any
      action it takes or omits to take in good faith in accordance with a
      direction received by it pursuant to Section 5.11 hereof; and

            (iv) Reserved.

            (d) Reserved.

            (e) The Indenture Trustee shall not be liable for interest on any
money received by it and held in a Trust Account except as may be provided in
the Sale and Servicing Agreement or as the Indenture Trustee may agree in
writing with the Issuer.

            (f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.

            (g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it; provided, however, that the Indenture Trustee
shall not refuse or fail to perform any of its duties hereunder solely as a
result of nonpayment of its normal fees and expenses and provided, further, that
nothing in this Section 6.01(g) shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer's failure to pay the Indenture Trustee's
fees and expenses pursuant to Section 6.07 hereof.

            (h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section 6.01.

            (i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than an Event
of Default pursuant to Section 5.01(a) or (b) hereof) unless a Responsible
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.

            Section 6.02. Rights of Indenture Trustee. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.

            (b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.

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<PAGE>

            (c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.

            (d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any action or inaction on the part of the Custodian.

            (e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.

            Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Section 6.11 hereof.

            Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.

            Section 6.05. Notices of Default. If a Default occurs and is
continuing and if it is actually known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder and each party to
the Master Disposition Confirmation Agreement notice of the Default within two
Business Days after it receives actual notice of such occurrence.

            Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information specifically requested
by each Noteholder and in the Indenture Trustee's possession and as may be
reasonably required to enable such Noteholder to prepare its federal and state
income tax returns.

            Section 6.07. Compensation and Indemnity. As compensation for its
services hereunder, the Indenture Trustee shall be entitled to receive, on each
Payment Date, the Indenture Trustee's Fee pursuant to Section 8.02(c) hereof
(which compensation shall not be limited by any law on compensation of a trustee
of an express trust) and shall be entitled to reimbursement by the Servicer for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer agrees to cause the Servicer to indemnify the Indenture Trustee, the
Paying Agent and their officers, directors, employees and agents against any and
all loss, liability or expense (including reasonable attorneys' fees) incurred
by it or them in

                                       36
<PAGE>

connection with the administration of this trust and the performance of its or
their duties under the Basic Documents. The Indenture Trustee shall notify the
Issuer and the Servicer promptly of any claim for which it may seek indemnity.
Failure by the Indenture Trustee so to notify the Issuer and the Servicer shall
not relieve the Issuer or the Servicer of its or their obligations hereunder.
The Issuer shall, or shall cause the Servicer to, defend any such claim;
provided, however, that if the defendants with respect to any such claim include
the Issuer and/or the Servicer and the Indenture Trustee, and the Indenture
Trustee shall have reasonably concluded that there may be legal defenses
available to it which are different from or in addition to those defenses
available to the Issuer or the Servicer, as the case may be, the Indenture
Trustee shall have the right, at the expense of the Servicer, to select separate
counsel to assert such legal defenses and to otherwise defend itself against
such claim. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.

            The Issuer's payment obligations to the Indenture Trustee pursuant
to this Section 6.07 shall survive the discharge of this Indenture and the
termination or resignation of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of a Default specified in Section 5.01 (f)
or (g) hereof with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.

            Notwithstanding anything in this Section 6.07 to the contrary, all
amounts due the Indenture Trustee hereunder shall be payable in the first
instance by the Servicer and, if not paid by the Servicer within 60 days after
payment is requested from the Servicer by the Indenture Trustee, in accordance
with the priorities set forth in Section 5.01 of the Sale and Servicing
Agreement.

            Section 6.08. Replacement of Indenture Trustee. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Majority Noteholders may
remove the Indenture Trustee (with the consent of the Majority
Certificateholders, not to be unreasonably withheld) by so notifying the
Indenture Trustee and may appoint a successor Indenture Trustee; provided, that
all of the reasonable costs and expenses incurred by the Indenture Trustee in
connection with such removal shall be reimbursed to it prior to the
effectiveness of such removal. The Issuer shall remove the Indenture Trustee if:

            (a) the Indenture Trustee fails to comply with Section 6.11 hereof;

            (b) the Indenture Trustee is adjudged a bankrupt or insolvent;

            (c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or

            (d) the Indenture Trustee otherwise becomes incapable of acting.

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<PAGE>

            If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.

            A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.

            If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Majority Noteholders may petition any court
of competent jurisdiction for the appointment of a successor Indenture Trustee.

            If the Indenture Trustee fails to comply with Section 6.11 hereof,
any Noteholder may petition any court of competent jurisdiction for the removal
of the Indenture Trustee and the appointment of a successor Indenture Trustee.

            Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 6.08. the Issuer's and the Administrator's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Indenture
Trustee.

            Section 6.09. Successor Indenture Trustee by Merger. If the
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee;
provided, however, that such corporation or banking association shall otherwise
be qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Majority Noteholders prior written notice of any such transaction.

            In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.

            Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee.

            (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may

                                       38
<PAGE>

at the time be located, the Indenture Trustee shall have the power and may
execute and deliver all instruments to appoint one or more Persons to act as a
co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Collateral, or any
part hereof, and, subject to the other provisions of this Section 6.10. such
powers, duties, obligations, rights and trusts as the Indenture Trustee may
consider necessary or desirable. No co-trustee or separate trustee hereunder
shall be required to meet the terms of eligibility as a successor trustee under
Section 6.11 hereof and no notice to Noteholders of the appointment of any
co-trustee or separate trustee shall be required under Section 6.08 hereof.

            (b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:

            (i) all rights, powers, duties and obligations conferred or imposed
      upon the Indenture Trustee shall be conferred or imposed upon and
      exercised or performed by the Indenture Trustee and such separate trustee
      or co-trustee jointly (it being understood that such separate trustee or
      co-trustee is not authorized to act separately without the Indenture
      Trustee joining in such act), except to the extent that under any law of
      any jurisdiction in which any particular act or acts are to be performed
      the Indenture Trustee shall be incompetent or unqualified to perform such
      act or acts, in which event such rights, powers, duties and obligations
      (including the holding of title to the Collateral or any portion thereof
      in any such jurisdiction) shall be exercised and performed singly by such
      separate trustee or co-trustee, but solely at the direction of the
      Indenture Trustee;

            (ii) no trustee hereunder shall be personally liable by reason of
      any act or omission of any other trustee hereunder; and

            (iii) the Indenture Trustee may at any time accept the resignation
      of or remove any separate trustee or co-trustee,

            (c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred; shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.

            (d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

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<PAGE>

            Section 6.11. Eligibility. The Indenture Trustee shall (i) have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition or (ii) otherwise be acceptable in
writing to the Majority Noteholders.

                                   ARTICLE VII

                         NOTEHOLDERS' LISTS AND REPORTS

            Section 7.01. Issuer to Furnish Indenture Trustee Names and
Addresses of Noteholders. The Issuer will furnish or cause to be furnished to
the Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Noteholders as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within 30 days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than 10 days prior to the time such list is furnished; provided, however,
that so long as the Indenture Trustee is the Note Registrar, no such list shall
be required to be furnished.

            Section 7.02. Preservation of Information. The Indenture Trustee
shall preserve, in as current a form as is reasonably practicable, the names and
addresses of the Noteholders contained in the most recent list furnished to the
Indenture Trustee as provided in Section 7.01 hereof and the names and addresses
of Noteholders received by the Indenture Trustee in its capacity as Note
Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.01 upon receipt of a new list so furnished.

            Section 7.03. 144A Information. The Indenture Trustee, to the extent
it has any such information in its possession, shall provide to any Noteholder
and any prospective transferee designated by any such Noteholder information
regarding the Notes and the Loans and such other information as shall be
necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4)
under the Securities Act for transfer of any such Note without registration
thereof under the Securities Act pursuant to the registration exemption provided
by Rule 144A under the Securities Act.

                                  ARTICLE VIII

                      ACCOUNTS, DISBURSEMENTS AND RELEASES

            Section 8.01. Collection of Money. General. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of, and shall receive and collect, directly and without intervention or
assistance of any intermediary, all money and other property payable to or
receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Collateral, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice

                                       40
<PAGE>

to any right to claim a Default or Event of Default under this Indenture and any
right to proceed thereafter as provided in Article V hereof.

            Section 8.02. Trust Accounts: Distributions, (a) On or prior to the
Closing Date, the Issuer shall cause the Servicer to establish and maintain, in
the name of the Indenture Trustee for the benefit of the Noteholders, or on
behalf of the Owner Trustee for the benefit of the Securityholders, the Trust
Accounts as provided in the Sale and Servicing Agreement. The Servicer shall
deposit amounts into each of the Trust Accounts in accordance with the terms
hereof, the Sale and Servicing Agreement and the Payment Statements.

            (b) Collection Account. With respect to the Collection Account, the
Paying Agent shall make such withdrawals and distributions as specified in
Section 5.01(c)(1) of the Sale and Servicing Agreement in accordance with the
terms thereof.

            (c) Distribution Account. With respect to the Distribution Account,
the Paying Agent shall make (i) such deposits as specified in Sections
5.01(c)(2)(A), 5.01(c)(2)(B), 5.05(e), 5.05(f), 5.05(g), and 5.05(h) of the Sale
and Servicing Agreement and (ii) such withdrawals and distributions as specified
in Section 5.01 (c)(3) of the Sale and Servicing Agreement in accordance with
the terms thereof.

            (d) Transfer Obligation Account. With respect to the Transfer
Obligation Account, the Paying Agent shall make (i) such deposits as specified
in Section 5.01(c)(3)(viii) of the Sale and Servicing Agreement and (ii) such
withdrawals and distributions as specified in Sections 5.05(d), 5.05(e),
5.05(f), 5,05(g), 5.05(h), and 5.05(i) of the Sale and Servicing Agreement in
accordance with the terms thereof.

            (e) Reserved.

            (f) Advance Account. With respect to the Advance Account, the Issuer
shall cause the Servicer to make such withdrawals specified in Section 2.06 of
the Sale and Servicing Agreement.

            Section 8.03. General Provisions Regarding Trust Accounts, (a) All
or a portion of the funds in the Collection Account and the Transfer Obligation
Account shall be invested in Permitted Investments in accordance with the
provisions of Section 5.03(b) of the Sale and Servicing Agreement. The Indenture
Trustee will not make any investment of any funds or sell any investment held in
the Collection Account or the Transfer Obligation Account (other than in
Permitted Investments in accordance with Section 5.03(b) of the Sale and
Servicing Agreement) unless the security interest Granted and perfected in such
account will continue to be perfected in such investment or the proceeds of such
sale, in either case without any further action by any Person, as evidenced by
an Opinion of Counsel delivered to the Indenture Trustee by the Initial
Noteholder or the Servicer, as the case may be.

            (b) Subject to Section 6.01(c) hereof, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in the Collection
Account or the Transfer Obligation Account resulting from any loss on any
Eligible Investment included therein.

                                       41
<PAGE>

            (c) If (i) the Initial Noteholder or the Servicer, as the case may
be, shall have failed to give investment directions for any funds on deposit in
the Collection Account or the Transfer Obligation Account to the Indenture
Trustee by 2:00 p.m. New York City time (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event
of Default shall have occurred and be continuing with respect to the Notes but
the Notes shall not have been declared due and payable pursuant to Section 5.02
hereof or (iii) if such Notes shall have been declared due and payable following
an Event of Default, amounts collected or receivable from the Collateral are
being applied in accordance with Section 5.05 hereof as if there had not been
such a declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Collection Account and the
Transfer Obligation Account in one or more Permitted Investments specified in
item (3) in the definition thereof.

            Section 8.04. The Paying Agent. The initial Paying Agent shall be
the Servicer. The Paying Agent may be removed by the Initial Noteholder in its
sole discretion at any time. Upon removal of the Paying Agent, the Initial
Noteholder will appoint a successor Paying Agent within 30 days; provided that
the Indenture Trustee will be the Paying Agent until such successor is
appointed. Upon receiving written notice from the Initial Noteholder that the
Paying Agent has been terminated, the Indenture Trustee will immediately
terminate the Paying Agent's access to any and all Trust Accounts.

            Section 8.05. Release of Collateral, (a) Subject to the payment of
its reasonable fees and expenses pursuant to Section 6.07 hereof, the Indenture
Trustee may, and when required by the provisions of this Indenture shall,
execute instruments acceptable to it and prepared and delivered to it by the
Issuer to release property from the lien of this Indenture, or convey the
Indenture Trustee's interest in the same, without recourse, representation or
warranty in a manner as provided in the Custodial Agreement and under
circumstances that are not inconsistent with the provisions of this Indenture
and the other Basic Documents. No party relying upon an instrument executed by
the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any moneys.

            (b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Noteholders (and their Affiliates), the
Initial Noteholder, the Sales Agents, the Indenture Trustee, the Owner Trustee
and the Custodian under the Basic Documents have been paid, release any
remaining portion of the Collateral that secured the Notes from the lien of this
Indenture and release to the Issuer or any other Person entitled thereto any
funds then on deposit in the Trust Accounts. The Indenture Trustee shall release
property from the lien of this Indenture pursuant to this subsection (b) only
upon receipt of an Issuer Request accompanied by an Officer's Certificate and an
Opinion of Counsel meeting the applicable requirements of Section 11.01 hereof.

            Section 8.06. Opinion of Counsel. Except to the extent specifically
permitted by the terms of the Basic Documents, the Indenture Trustee shall
receive at least seven Business Days' prior notice when requested by the Issuer
to take any action pursuant to Section 8.05(a) hereof, accompanied by copies of
any instruments involved, and the Indenture Trustee may also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, from the Issuer concluding that all
conditions precedent to the taking of such action have

                                       42
<PAGE>

been complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders in contravention of the
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the
Collateral. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Indenture Trustee in connection with any such
action.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

            Section 9.01. Supplemental Indentures Without the Consent of the
Noteholders. Without the consent of any Noteholder but with prior notice to the
Majority Noteholders, the Issuer and the Indenture Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Indenture Trustee, for any of the following purposes:

            (i) to correct or amplify the description of any property at any
      time subject to the lien of this Indenture, or better to assure, convey
      and confirm unto the Indenture Trustee any property subject or required to
      be subjected to the lien of this Indenture, or to subject to the lien of
      this Indenture additional property;

            (ii) to evidence the succession, in compliance with the applicable
      provisions hereof, of another Person to the Issuer, and the assumption by
      any such successor of the covenants of the Issuer herein and in the Notes
      contained;

            (iii) to add to the covenants of the Issuer, for the benefit of the
      Noteholders, or to surrender any right or power herein conferred upon the
      Issuer;

            (iv) to convey, transfer, assign, mortgage or pledge any property to
      or with the Indenture Trustee;

            (v) to cure any ambiguity, to correct or supplement any provision
      herein or in any supplemental indenture that may be inconsistent with any
      other provision herein or in any supplemental indenture or to make any
      other provisions with respect to matters or questions arising under this
      Indenture or in any supplemental indenture; provided, however, that such
      action shall not adversely affect the interests of the Noteholders; or

            (vi) to evidence and provide for the acceptance of the appointment
      hereunder by a successor trustee with respect to the Notes and to add to
      or change any of the provisions of this Indenture as shall be necessary to
      facilitate the administration of the trusts hereunder by more than one
      trustee, pursuant to the requirements of Article VI hereof.

            The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.

                                       43
<PAGE>

            Section 9.02. Supplemental Indentures with Consent of Noteholders.
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with the consent of the Majority Noteholders, by Act of such Noteholders
delivered to the Issuer and the Indenture Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of any Noteholder under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of each Noteholder affected thereby:

            (a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal balance thereof, the interest rate
thereon or the Termination Price with respect thereto, change the provisions of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Collateral to payment of principal of or interest on the Notes,
or change any place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V hereof, to the payment of any
such amount due on the Notes on or after the respective due dates thereof (or,
in the case of redemption, on or after the Redemption Date);

            (b) reduce the Percentage Interest, 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 compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;

            (c) modify or alter the provisions of the definition of the term
"Outstanding" or "Percentage Interest";

            (d) reduce the Percentage Interest of the Outstanding Notes, the
consent of the Holders of which is required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.04
hereof;

            (e) modify any provision of this Section 9.02 except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;

            (f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to adversely affect the rights of
the Noteholders to the benefit of any provisions for the mandatory redemption of
the Notes contained herein; or

            (g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or contemplated herein, terminate the lien of this
Indenture on any property at any time subject hereto or deprive any Noteholder
of the security provided by the lien of this Indenture.

                                       44
<PAGE>

            The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon each Noteholder, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.

            In connection with requesting the consent of the Noteholders
pursuant to this Section 9.02, the Indenture Trustee shall mail to the Holders
of the Notes to which such amendment or supplemental indenture relates a notice
prepared by the Issuer setting forth in general terms the substance of such
supplemental indenture. It shall not be necessary for any Act of Noteholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall approve the
substance thereof.

            Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.

            Section 9.04. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.

            Section 9.05. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.

                                    ARTICLE X

                         REDEMPTION OF NOTES; PUT OPTION

            Section 10.01. Redemption. The Servicer may, at its option, effect
an early redemption of the Notes on any Payment Date on or after the Clean-up
Call Date. The Servicer shall effect such early termination in the manner
specified in and subject to the provisions of Section 10.02 of the Sale and
Servicing Agreement.

                                       45
<PAGE>

            The Servicer shall furnish the Indenture Trustee with notice of any
such redemption in order to facilitate the Indenture Trustee's compliance with
its obligation to notify the Noteholders of such redemption in accordance with
Section 10.02 hereof.

            Section 10.02. Form of Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 10 days prior to the applicable
Redemption Date to each Noteholder, as of the close of business on the Record
Date preceding the applicable Redemption Date, at such Noteholder's address or
facsimile number appearing in the Note Register.

            All notices of redemption shall state:

            (i) the Redemption Date;

            (ii) that on the Redemption Date Noteholders shall receive the Note
      Redemption Amount; and

            (iii) the place where such Notes are to be surrendered for payment
      of the Termination Price (which shall be the office or agency of the
      Issuer to be maintained as provided in Section 3.02 hereof).

            Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give to any Noteholder notice of redemption, or any defect therein, shall not
impair or affect the validity of the redemption of any other Note.

            Section 10.03. Notes Payable on Redemption Date. The Notes to be
redeemed shall, following notice of redemption as required by Section 10.02
hereof (in the case of redemption pursuant to Section 10.01) hereof, on the
Redemption Date become due and payable at the Note Redemption Amount and (unless
the Issuer shall default in the payment of the Note Redemption Amount) no
interest shall accrue thereon for any period after the date to which accrued
interest is calculated for purposes of calculating the Note Redemption Amount.
The Issuer may not redeem the Notes unless all outstanding obligations under the
Notes have been paid in full.

            Section 10.04. Put: Required Principal Payments. The Issuer shall
pay any Required Principal Payments in the manner specified in and subject to
the provisions of Section 10.04 of the Sale and Servicing Agreement.

                                   ARTICLE XI

                                  MISCELLANEOUS

            Section 11.01. Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture

                                       46
<PAGE>

(except with respect to the Servicer's servicing activity in the ordinary course
of its business), the Issuer shall furnish to the Indenture Trustee (i) an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and (ii) an Opinion of Counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with.

            Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                  (1)   a statement that each signatory of such certificate or
                        opinion has read or has caused to be read such covenant
                        or condition and the definitions herein relating
                        thereto;

                  (2)   a brief statement as to the nature and scope of the
                        examination or investigation upon which the statements
                        or opinions contained in such certificate or opinion are
                        based;

                  (3)   a statement that, in the opinion of each such signatory,
                        such signatory has made such examination or
                        investigation as is necessary to enable such signatory
                        to express an informed opinion as to whether or not such
                        covenant or condition has been complied with; and

                  (4)   a statement as to whether, in the opinion of each such
                        signatory, such condition or covenant has been complied
                        with.

            Section 11.02. Form of Documents Delivered to Indenture Trustee. In
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.

            Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Loan Originator, the Issuer or the
Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Loan Originator, the Issuer or the
Administrator, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.

                                       47
<PAGE>

            Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

            Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI hereof.

            Section 11.03. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee, and,
where it is hereby expressly required, to the Issuer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01 hereof) conclusive in favor of the Indenture
Trustee and the Issuer, if made in the manner provided in this Section 11.03.

            (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.

            (c) The ownership of Notes shall be proved by the Note Register.

            (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Noteholder shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.

            Section 11.04. Notices, etc., to Indenture Trustee and Issuer. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture shall be
in writing and if such request, demand, authorization, direction, notice,
consent, waiver or act of Noteholders is to be made upon, given or furnished to
or filed with:

            (i) the Indenture Trustee by any Noteholder or by the Issuer shall
      be sufficient for every purpose hereunder if made, given, furnished or
      filed in writing (including by facsimile) to or with the Indenture Trustee
      at its Corporate Trust Office, or

                                       48
<PAGE>

            (ii) the Issuer by the Indenture Trustee or by any Noteholder shall
      be sufficient for every purpose hereunder if in writing and made, given,
      furnished, filed or transmitted via facsimile to the Issuer at: Option One
      Owner Trust 2001 - 1B, c/o Wilmington Trust Company as Owner Trustee, One
      Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890,
      Attention: Corporate Trust Department, telecopy number: (302) 651-8882,
      telephone number: (302) 651-1000, or at any other address or facsimile
      number previously furnished in writing to the Indenture Trustee by the
      Issuer or the Administrator. The Issuer shall promptly transmit any notice
      received by it from the Noteholders to the Indenture Trustee.

            Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have duly been given.

            Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.

            In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.

            Section 11.06. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.

            Section 11.07. Successors and Assigns. All covenants and agreements
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.

            Section 11.08. Separability. In case any provision in this Indenture
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

                                       49
<PAGE>

            Section 11.09. Benefits of Indenture. Nothing in this Indenture or
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, and the Noteholders, and any
other party secured hereunder, and any other Person with an ownership interest
in any part of the Collateral, any benefit or any legal or equitable right,
remedy or claim under this Indenture.

            Section 11.10. Legal Holidays. In any case where the date on which
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

            Section 11.11. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

            Section 11.12. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.

            Section 11.13. Recording of Indenture. If this Indenture is subject
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Indenture Trustee or any other counsel
reasonably acceptable to the Indenture Trustee; provided, however, that the
expense of such Opinion of Counsel shall in no event be an expense of the
Indenture Trustee) to the effect that such recording is necessary either for the
protection of the Noteholders or any other Person secured hereunder or for the
enforcement of any right or remedy granted to the Indenture Trustee under this
Indenture.

            Section 11.14. Trust Obligation. No recourse may be taken, directly
or indirectly, with respect to the obligations of the Issuer, the Owner Trustee
or the Indenture Trustee on the Notes or, except as expressly provided for in
Article VI hereof, under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Indenture Trustee
or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director, employee, agent or "control person" within the meaning of the
Securities Act and the Exchange Act, of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person may expressly have agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary of
the Issuer shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee

                                       50
<PAGE>

shall be subject to, and entitled to the benefits of, the terms and provisions
of Articles VI, VII and VIII of the Trust Agreement.

            Section 11.15. No Petition. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law, in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.

            Section 11.16. Inspection. The Issuer agrees that, on reasonable
prior notice, it will permit any representative of the Indenture Trustee, during
the Issuer's normal business hours, to examine all the books of account,
records, reports and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by Independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and Independent certified public accountants, all
at such reasonable times and as often as may reasonably be requested and at the
expense of the Servicer. The Indenture Trustee shall and shall cause its
representatives to hold in confidence all such information except to the extent
disclosure may be required by law (and all reasonable applications for
confidential treatment are unavailing) and except to the extent that the
Indenture Trustee may reasonably determine that such disclosure is consistent
with its obligations hereunder.

            Section 11.17. Limitation on Liability. It is expressly understood
and agreed by the parties hereto that (a) this Indenture is executed and
delivered by Wilmington Trust Company, not individually or personally, but
solely as Owner Trustee of Option One Owner Trust 2001-1B, in the exercise of
the powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Indenture or any other related documents.

                                       51
<PAGE>

            IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.

                                     OPTION ONE OWNER TRUST 2001-1B

                                     By: Wilmington Trust Company not in its
                                         individual capacity but solely as Owner
                                         Trustee

                                     BY: /s/ Mary Kay Pupillo
                                         -------------------------------------
                                     Name: Mary Kay Pupillo
                                     Title: Senior Financial Services Officer

                                     WELLS FARGO BANK MINNESOTA, NATIONAL
                                     ASSOCIATION, as Indenture Trustee

                                     By: /s/ Amy Doyle
                                        -------------------------------------
                                     Name:  Amy Doyle
                                     Title:

<PAGE>

STATE OF Maryland         )
                          )ss.:
COUNTY OF_________________)

            BEFORE ME, the undersigned authority, a Notary Public in and for
said county and state, on this day personally appeared Amy Doyle, known to me to
be the person and officer whose name is subscribed to the foregoing instrument
and acknowledged to me that the same was the act of WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.

            GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 18 day of April, 2001.

                                   /s/ Joan M. Clark
                                   ------------------------
                                   Notary Public

(Seal)                                         Joan M. Clark
                                               NOTARY PUBLIC
 My commission expires:                  BALTIMORE CITY, MARYLAND
______________________________          COMM. Exp. August 10, 2004

<PAGE>

STATE OF DELAWARE    )
                     )ss.:
COUNTY OF NEW CASTLE )

            BEFORE ME, the undersigned authority, a Notary Public in and for
said county and state, on this day personally appeared Mary Kay Pupillo, known
to me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
Wilmington Trust Company, a Delaware banking corporation, not in its individual
capacity, but solely as Owner Trustee on behalf of OPTION ONE OWNER TRUST 2001 -
1B, a Delaware business trust, and that such person executed the same as the act
of said business trust for the purpose and consideration therein expressed, and
in the capacities therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 17th day of April, 2001.

                                /s/ Susanne M. Gula
                                -------------------------
                                Notary Public

                                               SUSANNE M. GULA
                                                NOTARY PUBLIC
(Seal)                            My Commission Expires November 21, 2001

My commission expires:
___________________________

<PAGE>

                                    EXHIBIT A

                                  FORM OF NOTES

THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
MAXIMUM NOTE PRINCIPAL BALANCE SHOWN ON THE FACE HEREOF. ANY PURCHASER OF THIS
NOTE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE
INDENTURE TRUSTEE.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (A)(l), (2), (3) OR (7) OF RULE 501 UNDER THE
1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF
SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE WITH THE REQUIREMENTS OF
THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A "PLAN"),
AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE
TRANSFEREE IS A PLAN OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A
PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT LEAST ONE OF THE FOLLOWING
PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN SATISFIED: PROHIBITED
TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO TRANSACTIONS EFFECTED BY
AN "IN-HOUSE ASSET

                                      A-1
<PAGE>

MANAGER"), PTCE 95-60 (RELATING TO TRANSACTIONS INVOLVING INSURANCE COMPANY
GENERAL ACCOUNTS), PTCE 91-38 (RELATING TO TRANSACTIONS INVOLVING BANK
COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS INVOLVING
INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING TO
TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER").

                                      A-2
<PAGE>

Maximum Note Principal Balance: $__________________
Initial Percentage Interest: _________%
No.____

                         OPTION ONE OWNER TRUST 2001-1B

                              MORTGAGE-BACKED NOTES

            OPTION ONE OWNER TRUST 2001-1B, a Delaware business trust (the
"Issuer"), for value received, hereby promises to pay to_____________________,
or registered assigns (the "Noteholder"), the principal sum of
___________________________________($________________) or so much thereof as may
be advanced and outstanding hereunder and to pay interest on such principal sum
or such part thereof as shall remain unpaid from time to time, at the rate and
at the times provided in the Sale and Servicing Agreement and the Indenture.
Principal of this Note is payable on each Payment Date in an amount equal to the
result obtained by multiplying (i) the Percentage Interest of this Note by (ii)
the principal amount distributed in respect of such Payment Date.

            The Outstanding Note Principal Balance of this Note bears interest
at the Note Interest Rate. On each Payment Date amounts in respect of interest
on this Note will be paid in an amount equal to the result obtained by
multiplying (i) the Percentage Interest of this Note by (ii) the aggregate
amount paid in respect of interest on the Notes with respect to such Payment
Date.

            Capitalized terms used but not defined herein have the meanings set
forth in the Indenture (the "Indenture"), dated as of April 1, 2001 between the
Issuer and Wells Fargo Bank Minnesota, National Association, as Indenture
Trustee (the "Indenture Trustee") or, if not defined therein, the Sale and
Servicing Agreement (the "Sale and Servicing Agreement"), dated as of April 1,
2001 among the Issuer, the Depositor, the Servicer, the Loan Originator and the
Indenture Trustee on behalf of the Noteholders.

            In the event of an advance of Additional Note Principal Balance by
the Noteholders as provided in Section 2.01(c) of the Sale and Servicing
Agreement, each Noteholder shall, and is hereby authorized to, record on the
schedule attached to its Note the date and amount of any Additional Note
Principal Balance advanced by it, and each repayment thereof; provided that
failure to make any such recordation on such schedule or any error in such
schedule shall not adversely affect any Noteholder's rights with respect to its
Additional Note Principal Balance and its right to receive interest payments in
respect of the Additional Note Principal Balance held by such Noteholder.

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture Trustee and the Issuer; provided that failure by a
Noteholder to make such recordation on its Note or any error in such notation
shall not adversely affect any Noteholder's rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in
respect thereof.

                                      A-3
<PAGE>

            The Servicer may, at its option, effect an early redemption of the
Notes for an amount equal to the Note Redemption Amount on any Payment Date on
or after the Clean-up Call Date. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans at a purchase price, payable in cash,
equal to the Termination Price.

            Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

            The statements in the legend set forth above are an integral part of
the terms of this Note and by acceptance hereof each Holder of this Note agrees
to be subject to and bound by the terms and provisions set forth in such legend.

            Unless the Certificate of authentication hereon shall have been
executed by an authorized officer of the Indenture Trustee, by manual signature,
this Note shall not entitle the Noteholder hereof to any benefit under the
Indenture or the Sale and Servicing Agreement and/or be valid for any purpose.

            THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK AND WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PROVISIONS THEREOF.

                                      A-4
<PAGE>

            IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer, as of the date set
forth below.

Date: April ____, 2001

                                 OPTION ONE OWNER TRUST 2001-1B

                                 By: Wilmington Trust Company, not in its
                                     individual capacity but solely as Owner
                                     Trustee under the Trust Agreement

                                 By: ___________________________________________
                                                  Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

This is one of the Notes designated above and referred to in the
within-mentioned Indenture.

Date: April _____, 2001

                                 WELLS FARGO BANK MINNESOTA, NATIONAL
                                 ASSOCIATION, not in its individual capacity but
                                 solely as Indenture Trustee

                                 By: ___________________________________________
                                                  Authorized Signatory

                                      A-5
<PAGE>

                                [Reverse of Note]

            This Note is one of the duly authorized Notes of the Issuer,
designated as its Mortgage-Backed Notes (herein called the "Notes"), all issued
under the Indenture. Reference is hereby made to the Indenture and all
indentures supplemental thereto, and the Sale and Servicing Agreement for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Holders of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the Indenture
or the Sale and Servicing Agreement, the provisions of the Indenture or the Sale
and Servicing Agreement, as applicable, shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture and the Sale and Servicing Agreement.

            The principal of and interest on this Note are payable in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied in accordance with the Indenture and
the Sale and Servicing Agreement.

            The entire unpaid principal amount of this Note shall be due and
payable on the earlier of the Maturity Date and the Redemption Date.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Indenture Trustee, at the direction or upon
the prior written consent of the Majority Noteholders, has declared the Notes to
be immediately due and payable in the manner provided in Section 5.02 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
Holders of the Notes entitled thereto.

            The Collateral secures this Note and all other Notes equally and
ratably without prejudice, priority or distinction between any Note and any
other Note. The Notes are non-recourse obligations of the Issuer and are limited
in right of payment to amounts available from the Collateral, provided in the
Indenture. The Issuer shall not otherwise be liable for payments on the Notes,
and none of the owners, agents, officers, directors, employees, or successors or
assigns of the Issuer shall be personally liable for any amounts payable, or
performance due, under the Notes or the Indenture.

            Any installment of interest or principal on this Note shall be paid
on the applicable Payment Date to the Person in whose name this Note (or one or
more Predecessor Notes) is registered in the Note Register as of the close of
business on the related Record Date by wire transfer in immediately available
funds to the account specified in writing by the related Noteholder to the
extent provided by the Indenture and otherwise by check mailed to the
Noteholder.

            Any reduction in the principal amount of this Note (or any one or
more Predecessor Notes) effected by any payments made on any Payment Date shall
be binding upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. Any increase in the principal amount of this Note (or any
one or more Predecessor Notes) effected by payments to the Issuer of Additional
Note Principal Balances shall be binding upon the Issuer and shall inure to the
benefit of all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon.

                                      A-6
<PAGE>

            As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in the form attached hereto duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agent's Medallion Program
("STAMP"), and thereupon one or more new Notes of authorized denominations and
in the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the Issuer may require
the Noteholder to pay a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director employee or "control person" within the meaning of the
1933 Act and the Exchange Act of the Indenture Trustee or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees by accepting the benefits of the Indenture that
such Noteholder will not at any time institute against the Issuer, or join in
any institution against the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes or the Basic Documents.

            The Issuer has entered into the Indenture and this Note is issued
with the intention that, for federal, state and local income, single business
and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Collateral. Each Noteholder, by acceptance of a Note, agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer. Each Noteholder, by its
acceptance of a Note, represents and warrants that the number of ICA Owners with
respect to all of its Notes shall not exceed four.

            Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue,

                                      A-7
<PAGE>

and none of the Issuer, the Indenture Trustee or any such agent shall be
affected by notice to the contrary.

            The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Majority Noteholders. The Indenture
also contains provisions permitting the Holders of Notes representing specified
Percentage Interests of the Outstanding Notes, on behalf of all of the
Noteholders, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note (or any one or more
Predecessor Notes) shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of any Noteholder.

            The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.

            The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.

            No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.

            Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.

                                      A-8
<PAGE>

                                   ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee:

            FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:

________________________________________________________________________________
                         (name and address of assignee)

the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.

Dated: ______________________

                                                                              */
                                                ________________________________

                                                      Signature Guaranteed:

                                                                              */
                                                ________________________________

- ------------
*/NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of STAMP.

                                      A-9
<PAGE>

                                    Schedule to Note
                              dated as of April____, 2001
                           of OPTION ONE OWNER TRUST 2001-1B

<TABLE>
<CAPTION>
                    Amount of
Date of advance     advance of
 of Additional   Additional Note              Aggregate Note  Note Principal
 Note Principal     Principal     Percentage    Principal       Balance of
    Balance          Balance       Interest      Balance           Note
- ---------------  ---------------  ----------  --------------  --------------
<S>              <C>              <C>         <C>             <C>
                                     100%
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
- ---------------  ---------------  ----------  --------------  --------------
</TABLE>

                                      A-10
<PAGE>

                                   EXHIBIT B-1

                    FORM OF RULE 144A TRANSFEROR CERTIFICATE

Wells Fargo Bank Minnesota, National Association
11000 Broken Land Parkway
Columbia, Maryland 21044

      Re: Option One Owner Trust 2001-1B

      Reference is hereby made to the Indenture dated as of April 1, 2001 (the
"INDENTURE") between Option One Owner Trust 2001-1B (the "TRUST") and Wells
Fargo Bank Minnesota, National Association (the "INDENTURE TRUSTEE").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Sale and Servicing Agreement dated as of April 1, 2001 among the
Trust, Option One Loan Warehouse Corporation (the "DEPOSITOR"), Option One
Mortgage Corporation (the "SERVICER" and the "LOAN ORIGINATOR") and the
Indenture Trustee.

      The undersigned (the "TRANSFEROR") has requested a transfer of
$____________ current principal balance Notes to [insert name of transferee].

      In connection with such request, and in respect of such Notes, the
Transferor hereby certifies that such Notes are being transferred in accordance
with (i) the transfer restrictions set forth in the Indenture and the Notes and
(ii) Rule 144A under the Securities Act of 1933, as amended to a purchaser that
the Transferor reasonably believes is a "qualified institutional buyer" within
the meaning of Rule 144A purchasing for its own account or for the account of a
"qualified institutional buyer," which purchaser is aware that the sale to it is
being made in reliance upon Rule 144A, in a transaction meeting the requirements
of Rule 144A and in accordance with any applicable securities laws of any state
of the United States or any other applicable jurisdiction.

      This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor.

                                           _____________________________________
                                           [Name of Transferor]

                                           By: _________________________________
                                           Name:
                                           Title:

Dated:___________________, _________

                                      B-1-1
<PAGE>

                                   EXHIBIT B-2

                       FORM OF TRANSFEREE CERTIFICATE FOR
                        INSTITUTIONAL ACCREDITED INVESTOR

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2001-1B

      Re: Option One Owner Trust 2001-1B

      In connection with our proposed purchase of $ _________________ Note
Principal Balance Mortgage-Backed Notes (the "OFFERED NOTES") issued by Option
One Owner Trust 2001-1B, we confirm that:

(1)   We understand that the Offered Notes have not been, and will not be,
      registered under the Securities Act of 1933, as amended (the "1933 ACT")
      or any state securities laws, and may not be sold except as permitted in
      the following sentence. We agree, on our own behalf and on behalf of any
      accounts for which we are acting as hereinafter stated, that if we should
      sell any Offered Notes we will do so only (A) pursuant to a registration
      statement which has been declared effective under the 1933 Act, (B) for so
      long as the Offered Notes are eligible for resale pursuant to Rule 144A
      under the 1933 Act, to a Person we reasonably believe is a "qualified
      institutional buyer" as defined in Rule 144A that purchases for its own
      account or for the account of a qualified institutional buyer to whom
      notice is given that the transfer is being made in reliance on Rule 144A,
      (C) to an institutional "accredited investor" within the meaning of
      subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the 1933 Act (an
      "INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Offered Notes
      for its own account, or for the account of such an Institutional
      Accredited Investor, for investment purposes and not with a view to, or
      for offer or sale in connection with, any distribution in violation of the
      1933 Act, in each case in compliance with the requirements of the
      Indenture dated as of April 1, 2001 between Option One Owner Trust 2001-1B
      and Wells Fargo Bank Minnesota, National Association, as Indenture
      Trustee, and applicable state securities laws; and we further agree, in
      the capacities stated above, to provide to any person purchasing any of
      the Offered Notes from us a notice advising such purchaser that resales of
      the Offered Notes are restricted as stated herein.

(2)   We understand that, in connection with any proposed resale of any Offered
      Notes to an Institutional Accredited Investor, we will be required to
      furnish to the Indenture Trustee and the Depositor a certification from
      such transferee as provided in Section 2.12 of the Indenture to confirm
      that the proposed sale is being made pursuant to an exemption from, or in
      a transaction not subject to, the registration requirements of the 1933
      Act and applicable state securities laws. We further understand that the
      Offered Notes purchased by us will bear a legend to the foregoing effect.

                                      B-2-1
<PAGE>

(3)   We are acquiring the Offered Notes for investment purposes and not with a
      view to, or for offer or sale in connection with, any distribution in
      violation of the 1933 Act. We have such knowledge and experience in
      financial and business matters as to be capable of evaluating the merits
      and risks of our investment in the Offered Notes, and we and any account
      for which we are acting are each able to bear the economic risk of such
      investment.

(4)   We are an Institutional Accredited Investor and we are acquiring the
      Offered Notes purchased by us for our own account or for one or more
      accounts (each of which is an Institutional Accredited Investor) as to
      each of which we exercise sole investment discretion.

(5)   We have received such information as we deem necessary in order to make
      our investment decision.

(6)   We either (i) are not, and are not acquiring the Offered Notes on behalf
      of or with the assets of, an employee benefit plan or other retirement
      plan or arrangement subject to Title I of ERISA or Section 4975 of the
      Code, or (b) are, or are acquiring the Offered Notes on behalf of or with
      the assets of, an employee benefit plan or other retirement plan or
      arrangement subject to Title I of ERISA of Section 4975 of the Code and
      the conditions for exemptive relief under at least one of the following
      prohibited transaction class exemptions have been satisfied: Prohibited
      Transaction Class Exemption ("PTCE") 96-23 (relating to transactions
      effected by an "in-house asset manager"), PTCE 95-60 (relating to
      transactions involving insurance company general accounts), PTCE 91-38
      (relating to transactions involving bank collective investment funds),
      PTCE 90-1 (relating to transactions involving insurance company pooled
      separate accounts), and PTCE 84-14 (relating to transactions effected by a
      "qualified professional asset manager").

      Terms used in this letter which are not otherwise defined herein have the
respective meanings assigned thereto in the Indenture.

      You and the Depositor are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.

                                           _____________________________________
                                           [Name of Transferor]

                                           By: _________________________________
                                           Name:
                                           Title:

Dated:___________________, _________

                                      B-2-2
<PAGE>

                                   EXHIBIT B-3

                    FORM OF RULE 144A TRANSFEREE CERTIFICATE

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2001-1B

      Re: Option One Owner Trust 2001-1B

      1. The undersigned is the _________________ of ___________________________
(the "INVESTOR"), a [corporation duly organized] and existing under the laws
of _________ on behalf of which he makes this affidavit.

      2. The Investor either (i) is not, and is not acquiring the Offered Notes
on behalf of or with the assets of, an employee benefit plan or other retirement
plan or arrangement subject to Title I of ERISA or Section 4975 of the Code, or
(b) is, or is acquiring the Offered Notes on behalf of or with the assets of, an
employee benefit plan or other retirement plan or arrangement subject to Title I
of ERISA of Section 4975 of the Code and the conditions for exemptive relief
under at least one of the following prohibited transaction class exemptions have
been satisfied: Prohibited Transaction Class Exemption ("PTCE") 96-23 (relating
to transactions effected by an "in-house asset manager"), PTCE 95-60 (relating
to transactions involving insurance company general accounts), PTCE 91-38
(relating to transactions involving bank collective investment funds), PTCE 90-1
(relating to transactions involving insurance company pooled separate accounts),
and PTCE 84-14 (relating to transactions effected by a "qualified professional
asset manager").

      3. The Investor understands that the Offered Notes have not been, and will
not be, registered under the Securities Act of 1933, as amended (the "1933 ACT")
or any state securities laws, and may not be sold except as permitted in the
following sentence. The Investor agrees, on its own behalf and on behalf of any
accounts for which it is acting as hereinafter stated, that if it should sell
any Offered Notes it will do so only (A) pursuant to a registration statement
which has been declared effective under the 1933 Act, (B) for so long as the
Offered Notes are eligible for resale pursuant to Rule 144A under the 1933 Act,
to a Person it reasonably believes is a "qualified institutional buyer" as
defined in Rule 144A that purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the transfer is being
made in reliance on Rule 144A, (C) to an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the
1933 Act (an "INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Offered
Notes for its own account, or for the account of such an Institutional
Accredited Investor, for investment purposes and not with a view to, or for
offer or sale in connection with, any distribution in violation of the 1933 Act,
in each case in compliance with the requirements of the Indenture dated as of
April 1, 2001 between Option One Owner Trust 2001-1B and Wells Fargo Bank
Minnesota, National Association, as Indenture Trustee, and applicable state
securities laws; and the Investor further agrees, in the capacities stated
above, to provide to any person purchasing

                                      B-3-1
<PAGE>

any of the Offered Notes from it a notice advising such purchaser that resales
of the Offered Notes are restricted as stated herein.

                   [FOR TRANSFERS IN RELIANCE UPON RULE 144A]

      4. The Investor is a "qualified institutional buyer" (as such term is
defined under Rule 144A under the Securities Act of 1933, as amended (the "1933
ACT"), and is acquiring the Offered Notes for its own account or as a fiduciary
or agent for others (which others also are "qualified institutional buyers").
The Investor is familiar with Rule 144A under the 1933 Act, and is aware that
the transferor of the Offered Notes and other parties intend to rely on the
statements made herein and the exemption from the registration requirements of
the 1933 Act provided by Rule 144A.

                                           _____________________________________
                                           [Name of Transferor]

                                           By: _________________________________
                                           Name:
                                           Title:

Dated:___________________, _________

                                      B-3-2
<PAGE>

                                    EXHIBIT C

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7) OF RULE 501
UNDER THE 1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE WITH THE
REQUIREMENTS OF THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS RECEIVED A
CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (EACH, A "PLAN"),
AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN OR (II) IF THE
TRANSFEREE IS A PLAN, OR IS ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A
PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT LEAST ONE OF THE FOLLOWING
PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN SATISFIED: PROHIBITED
TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO TRANSACTIONS EFFECTED BY
AN "IN-HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO TRANSACTIONS INVOLVING
INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING TO TRANSACTIONS
INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS
INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING
TO TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER").

                                       C-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.57
<SEQUENCE>17
<FILENAME>c91685exv10w57.txt
<DESCRIPTION>AMENDMENT NO. 5 TO THE INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.57

                              AMENDMENT NUMBER FIVE
                                     to the
                                   INDENTURE,
             dated as of April 1, 2001, and as amended and restated
                    through and including November 25, 2003
                                    between
                         OPTION ONE OWNER TRUST 2001-1B
                                      and
                             WELLS FARGO BANK, N.A.

            This AMENDMENT NUMBER FIVE (this "Amendment") is made and is
effective as of this 16th day of April, 2004, between Option One Owner Trust
2001-1B (the "Issuer") and Wells Fargo Bank, N.A. (formerly known as Wells Fargo
Bank Minnesota, National Association), as Indenture Trustee (the "Indenture
Trustee"), to the Indenture dated as of April 1, 2001, and as amended and
restated through and including November 25, 2003 (the "Indenture"), between the
Issuer and the Indenture Trustee.

                                    RECITALS

            WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

            NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants herein
contained, the parties hereto hereby agree as follows:

            SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

            SECTION 2. Amendment. Section 1.01 of the Indenture is hereby
amended by deleting in its entirety the definition of "Maturity Date" and
replacing it with the following:

            (a)   The Granting Clause of the Indenture is hereby amended by
deleting it in its entirety and replacing it with the following:

                                "GRANTING CLAUSE

            Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Noteholders, all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to: (i) such Loans as from time to time are
subject to the Sale and Servicing Agreement as listed in the Loan Schedule, as
the same may be amended or supplemented on each Transfer Date and by the removal
of Deleted Loans and Unqualified Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Custodial Loan
Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest
and principal with respect to each Loan and Residual Security received on or
after the related

<PAGE>

Transfer Cut-off Date, (iv) such assets as from time to time are identified as
Foreclosure Property, (v) such assets and funds as are from time to time
deposited in the Distribution Account, Collection Account and the Transfer
Obligation Account, including, without limitation, amounts on deposit in such
accounts that are invested in Permitted Investments, (vi) lenders' rights under
all Mortgage Insurance Policies and to any Mortgage Insurance Proceeds, (vii)
Net Liquidation Proceeds and Released Mortgaged Property Proceeds, (viii) all
right, title and interest of the Trust (but none of the obligations) in and to
the obligations of Hedging Counterparties under Hedging Instruments; (ix) all
right, title and interest of each of the Depositor, the Loan Originator and the
Trust in and under the Basic Documents including, without limitation, the
obligations of the Loan Originator under the Loan Purchase and Contribution
Agreement, the Master Disposition Confirmation Agreement and the Residual
Securities Transfer Agreement, and all proceeds of any of the foregoing, (x) all
right, title and interest of the Issuer in and to the Sale and Servicing
Agreement, including the Issuer's right to cause the Loan Originator to
repurchase Loans and Residual Securities from the Issuer under certain
circumstances described therein), (xi) all right, title and interest (but none
of the obligations) of the Trust in, to and under the Advance Note and all
Additional Note Balances thereunder, (xii) all right, title and interest (but
none of the obligations) of the Trust in, to and under the Advance Documents,
(xiii) such Residual Securities as from time to time are subject to this
Agreement as listed in the Residual Securities Schedule, as the same may be
amended or supplemented on each Transfer Date and by the removal of Deleted
Residual Securities and Unqualified Residual Securities and by the addition of
Qualified Substitute Residual Securities, together with the Loan Documents
relating thereto and all proceeds thereof, (xiv) all right, title and interest
of the Trust (but none of the obligations) in and to the Swap Agreement, (xv)
all other Property of the Trust from time to time and (xvi) all present and
future claims, demands, causes of action and choses in action in respect of any
or all of the foregoing and all payments on or under and all proceeds of every
kind and nature whatsoever in respect of any or all of the foregoing, including
all proceeds of the conversion thereof, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind and other
forms of obligations and receivables, instruments and other property which at
any time constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").

            The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.

            The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the Noteholders may adequately and effectively be
protected."

      (b)   Section 1.01 of the Indenture is hereby amended by adding the
following definition:

            "Residual Security" Any security sold to the Trust hereunder and
pledged to the Indenture Trustee, which security must be (i) a mortgage-backed
security issued by Option One Mortgage Acceptance Corp. and evidencing an
interest in a securitization trust backed by residential mortgage loans, which
mortgage loans are serviced by Option One Mortgage Corporation (in such
capacity, "Option One") (including, without limitation, securities designated as
class C certificates

                                        2
<PAGE>

and class P certificates that meet the foregoing criteria) or (ii) a net
interest margin security issued by a trust sponsored by Option One and backed by
class C certificates and/or Class P certificates, which certificates are in turn
backed by residential mortgage loans serviced by Option One."

      (c)   Section 1.01 of the Indenture is hereby amended by deleting the
definition of "Maturity Date" in its entirety and replacing it with the
following definition:

            "Maturity Date: means, with respect to the Notes, April 30, 2004."

      (d)   Section 2.08(e)(ii) of the Indenture is hereby amended by deleting
such subsection it in its entirety and replacing it with the following:

            "(ii) the Issuer is the owner of all of the Loans and the Residual
Securities, has not assigned any interest or participation in the Loans or the
Residual Securities (or, if any such interest or participation has been
assigned, it has been released) and has the right to Grant all of the Loans and
Residual Securities to the Indenture Trustee;"

      (e)   Section 3.08 of the Indenture is hereby amended by deleting such
section in its entirety and replacing it with the following:

            "Section 3.08. Assignment of Rights. The Issuer grants and assigns
to the Initial Noteholder for the benefit of the Secured Parties all rights of
the Issuer to enforce the covenants and conditions set forth in the Advance
Note, the Advance Documents, the Residual Securities and the Loan Documents
relating to the Residual Securities and all voting rights and rights of the
Issuer to give any waivers or consents required or allowed under the Advance
Note, the Advance Documents and the Loan Documents relating to the Residual
Securities, and such waivers and consents shall be binding upon the Issuer as if
the Issuer had given the same. The Issuer hereby constitutes and irrevocably
appoints the Initial Noteholder, with full power of substitution and revocation,
as the Issuer's true and lawful agent and attorney-in-fact, with the power to
the full extent permitted by law, to affix to any certificates and documents
representing the Advance Note or any Residual Security the endorsements
delivered with respect thereto, and to transfer or cause the transfer of the
Advance Note and each Residual Security, or any part thereof, on the books of
the Advance Trust or the issuer of such Residual Security, as applicable, to the
name of the Indenture Trustee on behalf of the Secured Parties or any nominee of
hereof, and thereafter to exercise with respect to such Advance Note or Residual
Security, all the rights, powers and remedies of an owner. The power of attorney
granted pursuant to this Indenture and all authority hereby conferred are
granted and conferred solely to protect the Secured Parties respective interest
in the Collateral and shall not impose any duty upon the Initial Noteholder to
exercise any power. The Issuer shall execute any documentation including,
without limitation, any powers of attorney and/or irrevocable proxies, requested
by the Initial Noteholder to effectuate such assignment. The Issuer shall, or
shall cause the Receivables Seller and the Loan Originator (as applicable) to,
provide the Initial Noteholder with copies of all reports, notices, statements
and certificates delivered under the Advance Documents or the Loan Documents
relating to the Residual Securities, and any other information that the Initial
Noteholder shall reasonably request. Delivery of such reports, notices,
information and documents to the Initial Noteholder under this section is for
informational purposes only and the Initial Noteholders's receipt of such shall
not constitute constructive notice of any information contained therein or
determinable

                                        3
<PAGE>

from information contained therein, including the Issuer's compliance with any
of its covenants. The foregoing grant and assignment are powers coupled with an
interest and are irrevocable."

      (f)   Section 7.03 of the Indenture is hereby amended by deleting such
section in its entirety and replacing it with the following:

            "Section 7.03. 144A Information. The Indenture Trustee, to the
extent it has any such information in its possession, shall provide to any
Noteholder and any prospective transferee designated by any such Noteholder
information regarding the Notes, the Loans, the Residual Securities and such
other information as shall be necessary to satisfy the condition to eligibility
set forth in Rule 144A(d)(4) under the Securities Act for transfer of any such
Note without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A under the Securities Act."

      (g)   The sixth paragraph of Exhibit A to the Indenture is hereby amended
by deleting such paragraph in its entirety and replacing it with the following:

            "The Servicer may, at its option, effect an early redemption of the
Notes for an amount equal to the Note Redemption Amount on any Payment Date on
or after the Clean-up Call Date. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans and the Residual Securities at a
purchase price, payable in cash, equal to the Termination Price."

            SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture.

            SECTION 4. Limited Effect. Except as expressly amended and modified
by this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or document executed in connection therewith
or herewith, or in any certificate, letter or communication issued or made
pursuant to, or with respect to, the Indenture, any reference in any of such
items to the Indenture being sufficient to refer to the Indenture as amended
hereby.

            SECTION 5. Fees and Expenses. The Issuer covenants to pay as and
when billed by the Initial Noteholder all of the reasonable out-of-pocket costs
and expenses incurred in connection with the transactions contemplated hereby
and in the other Basic Documents including, without limitation, (i) all
reasonable fees, disbursements and expenses of counsel to the Initial Noteholder
and (ii) all reasonable fees and expenses of the Indenture Trustee and its
counsel.

            SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

                                        4
<PAGE>

            SECTION 7. Counterparts. This Amendment may be executed by each of
the parties hereto on any number of separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.

            SECTION 8. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1B in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Amendment or any other related documents.

                            [signature page follows]

                                        5
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.

                                      OPTION ONE OWNER TRUST 2001-1B

                                      By: Wilmington Trust Company, not in its
                                      individual capacity but solely as owner
                                      trustee

                                      By: /s/ Rachel L. Simpson
                                          --------------------------------------
                                      Name: RACHEL L. SIMPSON
                                      Title: Financial Services Officer

                                      WELLS FARGO BANK, N.A., as Indenture
                                      Trustee

                                      By: /s/ Reid Denny
                                          --------------------------------------
                                      Name: REID DENNY
                                      Title: VICE PRESIDENT
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.58
<SEQUENCE>18
<FILENAME>c91685exv10w58.txt
<DESCRIPTION>AMENDMENT NO. 6 TO THE INDENTURE
<TEXT>
<PAGE>
                                                                   EXHIBIT 10.58

                              AMENDMENT NUMBER SIX
                                     to the
                                   INDENTURE,
             dated as of April 1, 2001, and as amended and restated
                    through and including November 25, 2003
                                    between
                         OPTION ONE OWNER TRUST 2001-1B
                                      and
                             WELLS FARGO BANK, N.A.

         This AMENDMENT NUMBER SIX (this "Amendment") is made and is effective
as of this 30th day of April, 2004, between Option One Owner Trust 2001-1B (the
"Issuer") and Wells Fargo Bank, N.A. (formerly known as Wells Fargo Bank
Minnesota, National Association), as Indenture Trustee (the "Indenture
Trustee"), to the Indenture dated as of April 1, 2001, and as amended and
restated through and including November 25, 2003 (the "Indenture"), between the
Issuer and the Indenture Trustee.

                                    RECITALS

         WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

         NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants
herein contained, the parties hereto hereby agree as follows:

         SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

         SECTION 2. Amendment. Section 1.01 of the Indenture is hereby amended
by deleting in its entirety the definition of "Maturity Date" and replacing it
with the following:

         (a)      Section 1.01 of the Indenture is hereby amended by deleting
the definition of "Maturity Date" in its entirety and replacing it with the
following definition:

         "Maturity Date: means, with respect to the Notes, April 29, 2005.

         SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture.
<PAGE>
     SECTION 4. Limited Effect. Except as expressly amended and modified by
this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or document executed in connection therewith
or herewith, or in any certificate, letter or communication issued or made
pursuant to, or with respect to, the Indenture, any reference in any of such
items to the Indenture being sufficient to refer to the Indenture as amended
hereby.

     SECTION 5. Fees and Expenses. The Issuer covenants to pay as and when
billed by the Initial Noteholder all of the reasonable out-of-pocket costs and
expenses incurred in connection with the transactions contemplated hereby and
in the other Basic Documents including, without limitation, (i) all reasonable
fees, disbursements and expenses of counsel to the Initial Noteholder and (ii)
all reasonable fees and expenses of the Indenture Trustee and its counsel.

     SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

     SECTION 7. Counterparts. This Amendment may be executed by each of the
parties hereto on any number of separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same
instrument.

     SECTION 8. Limitation on Liability. It is expressly understood and agreed
by the parties hereto that (a) this Amendment is executed and delivered by
Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1B in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating
any liability on Wilmington Trust Company, individually or personally, to
perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Amendment or any other related documents.


                            [signature page follows]






                                       2
<PAGE>
         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.


                                    OPTION ONE OWNER TRUST 2001-1B

                                    By: Wilmington Trust Company, not in its
                                    individual capacity but solely as owner
                                    trustee


                                    By: /s/ Mary Kay Pupillo
                                       --------------------------------------
                                    Name:  Mary Kay Pupillo
                                    Title: Senior Financial Services Officer


                                    WELLS FARGO BANK, N.A., as Indenture
                                    Trustee


                                    By: /s/ Amy Doyle
                                       --------------------------------------
                                    Name:  Amy Doyle
                                    Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.59
<SEQUENCE>19
<FILENAME>c91685exv10w59.txt
<DESCRIPTION>AMENDMENT NO. 6 TO THE INDENTURE
<TEXT>
<PAGE>

                                                                   Exhibit 10.59

                              AMENDMENT NUMBER SIX
                                     to the
                         AMENDED AND RESTATED INDENTURE,
                         dated as of November 25, 2003,
                                     between
                       OPTION ONE OWNER TRUST 2001-1B and
                             WELLS FARGO BANK, N.A.

            This AMENDMENT NUMBER SIX (this "Amendment") is made and is
effective as of this 29th day of April, 2005, between Option One Owner Trust
2001-1B (the "Issuer") and Wells Fargo Bank, N.A., as Indenture Trustee (the
"Indenture Trustee"), to the Amended and Restated Indenture, dated as of
November 25, 2003 (the "Indenture"), between the Issuer and the Indenture
Trustee.

                                    RECITALS

            WHEREAS, the parties hereto desire to amend the Indenture subject to
the terms and conditions of this Amendment.

            NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and of the mutual covenants herein
contained, the parties hereto hereby agree as follows:

            SECTION 1. Defined Terms. Any terms capitalized but not otherwise
defined herein shall have the respective meanings set forth in the Indenture.

            SECTION 2. Amendment. Effective as of April 29, 2005, Section 1.01
of the Indenture is hereby amended by deleting in its entirety the definition of
"Maturity Date" and replacing it with the following:

            "Maturity Date" means, with respect to the Notes, April 28, 2006.

            SECTION 3. Representations. In order to induce the parties hereto to
execute and deliver this Amendment, the Issuer hereby represents to the
Indenture Trustee and the Noteholders that as of the date hereof, after giving
effect to this Amendment, (a) all of its respective representations and
warranties in the Indenture and the other Basic Documents are true and correct,
and (b) it is otherwise in full compliance with all of the terms and conditions
of the Indenture and the other Basic Documents.

            SECTION 4. Limited Effect. Except as expressly amended and modified
by this Amendment, the Indenture shall continue in full force and effect in
accordance with its terms. Reference to this Amendment need not be made in the
Indenture or any other instrument or

<PAGE>

document executed in connection therewith or herewith, or in any certificate,
letter or communication issued or made pursuant to, or with respect to, the
Indenture, any reference in any of such items to the Indenture being sufficient
to refer to the Indenture as amended hereby.

            SECTION 5. Fees and Expenses. The Issuer covenants to pay as and
when billed by the Initial Noteholder all of the reasonable out-of-pocket costs
and expenses incurred in connection with the transactions contemplated hereby
and in the other Basic Documents including, without limitation, (i) all
reasonable fees, disbursements and expenses of counsel to the Initial Noteholder
and (ii) all reasonable fees and expenses of the Indenture Trustee and its
counsel.

            SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE.

            SECTION 7. Counterparts. This Amendment may be executed by each of
the parties hereto on any number of separate counterparts, each of which shall
be an original and all of which taken together shall constitute one and the same
instrument.

            SECTION 8. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2001-1B in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein, all such liability,
if any, being expressly waived by the parties hereto and by any Person claiming
by, through or under the parties hereto and (d) under no circumstances shall
Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaken by the
Issuer under this Amendment or any other related documents.

                            [signature page follows]

                                       2
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the day and
year first above written.

                                 OPTION ONE OWNER TRUST 2001-1B

                                 By: Wilmington Trust Company, not in its
                                 individual capacity but solely as owner trustee

                                 By: /s/ Mary Kay Pupillo
                                     -------------------------------------------
                                 Name: Mary Kay Pupillo
                                 Title: Assistant Vice President

                                 WELLS FARGO BANK, N.A., as Indenture Trustee

                                 By: /s/ Darron C. Woodus
                                     -------------------------------------------
                                 Name: Darron C. Woodus
                                 Title: Assistant Vice President
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.60
<SEQUENCE>20
<FILENAME>c91685exv10w60.txt
<DESCRIPTION>AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.60

================================================================================

                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

                                      among

                         OPTION ONE OWNER TRUST 2001-1B
                                    as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION
                                  as Depositor

                                       and

                          STEAMBOAT FUNDING CORPORATION
                                  as Purchaser

                           Dated as of April 16, 2004

                         OPTION ONE OWNER TRUST 2001-1B
                              MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                       <C>
                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01 Certain Defined Terms......................................................   1
SECTION 1.02 Other Definitional Provisions..............................................   3

                                   ARTICLE II

                            CLOSING AND PURCHASES OF
                       ADDITIONAL NOTE PRINCIPAL BALANCES

SECTION 2.01 Closing....................................................................   3
SECTION 2.02 Requests for Purchase of Additional Note Principal Balances; Collateral
             Value Increase Dates.......................................................   3

                                   ARTICLE III

                                 TRANSFER DATES

SECTION 3.01 Transfer Dates.............................................................   4
SECTION 3.02 Funding Dates..............................................................   5

                                   ARTICLE IV

                              CONDITIONS PRECEDENT

SECTION 4.01 Closing Subject to Conditions Precedent....................................   6

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES
                         OF THE ISSUER AND THE DEPOSITOR

SECTION 5.01 Issuer.....................................................................   8
SECTION 5.02 Securities Act.............................................................  10
SECTION 5.03 No Fee.....................................................................  10
SECTION 5.04 Information................................................................  10
SECTION 5.05 The Purchased Note.........................................................  10
SECTION 5.06 Use of Proceeds............................................................  11
SECTION 5.07 The Depositor..............................................................  11
SECTION 5.08 Taxes, etc.................................................................  11
SECTION 5.09 Financial Condition........................................................  11
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                                       <C>
                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES
                          WITH RESPECT TO THE PURCHASER

SECTION 6.01 Organization...............................................................  11
SECTION 6.02 Authority, etc.............................................................  11
SECTION 6.03 Securities Act.............................................................  12
SECTION 6.04 Conflicts With Law.........................................................  12
SECTION 6.05 Conflicts With Agreements, etc.............................................  12

                                   ARTICLE VII

                    COVENANTS OF THE ISSUER AND THE DEPOSITOR

SECTION 7.01 Information from the Issuer................................................  12
SECTION 7.02 Access to Information......................................................  13
SECTION 7.03 Ownership and Security Interests; Further Assurances.......................  13
SECTION 7.04 Covenants..................................................................  13
SECTION 7.05 Amendments.................................................................  13
SECTION 7.06 With Respect to the Exempt Status of the Purchased Note....................  14

                                  ARTICLE VIII

                              ADDITIONAL COVENANTS

 SECTION 8.01 Legal Conditions to Closing...............................................  14
 SECTION 8.02 Expenses..................................................................  14
 SECTION 8.03 Mutual Obligations........................................................  15
 SECTION 8.04 Restrictions on Transfer..................................................  15
 SECTION 8.05 Confidentiality...........................................................  15
 SECTION 8.06 Information Provided by the Purchaser.....................................  15

                                   ARTICLE IX

                                 INDEMNIFICATION

SECTION 9.01 Indemnification of Purchaser ..............................................  15

                                    ARTICLE X

                                 MISCELLANEOUS

SECTION 10.01 Amendments................................................................  16
SECTION 10.02 Notices...................................................................  16
SECTION 10.03 No Waiver; Remedies.......................................................  16
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>                                                                                       <C>
SECTION 10.04 Binding Effect; Assignability.............................................  16
SECTION 10.05 Provision of Documents and Information....................................  17
SECTION 10.06 GOVERNING LAW; JURISDICTION...............................................  17
SECTION 10.07 No Proceedings............................................................  17
SECTION 10.08 Execution in Counterparts.................................................  17
SECTION 10.09 No Recourse - Purchaser and Depositor.....................................  18
SECTION 10.10 Survival..................................................................  18
SECTION 10.11 Tax Characterization......................................................  18
SECTION 10.12 Conflicts ................................................................  18
SECTION 10.13 Limitation on Liability...................................................  19
</TABLE>

Schedule I - Information for Notices

                                       iii
<PAGE>

                             NOTE PURCHASE AGREEMENT

            AMENDED AND RESTATED NOTE PURCHASE AGREEMENT, dated and effective as
of April 16, 2004 (the "Note Purchase Agreement"), among OPTION ONE OWNER TRUST
2001-1B (the "Issuer"), OPTION ONE LOAN WAREHOUSE CORPORATION (the "Depositor"),
and STEAMBOAT FUNDING CORPORATION ("Steamboat," and in its capacity as Purchaser
hereunder, the "Purchaser").

            The parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

            SECTION 1.01 Certain Defined Terms. Capitalized terms used herein
without definition shall have the meanings set forth in the Indenture and the
Sale and Servicing Agreement (as defined below). Additionally, the following
terms shall have the following meanings:

            "Closing" shall have the meaning set forth in Section 2.01.

            "Closing Date" shall have the meaning set forth in Section 2.01.

            "Confidential Information" means all marketing information,
financial information, terms sheets and other information concerning the
transactions contemplated thereby, prepared by the Purchaser and its Affiliates.

            "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

            "Governmental Actions" means any and all consents, approvals,
permits, orders, authorizations, waivers, exceptions, variances, exemptions or
licenses of, or registrations, declarations or filings with, any Governmental
Authority required under any Governmental Rules.

            "Governmental Authority" means the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and having jurisdiction over the applicable Person.

            "Governmental Rules" means any and all laws, statutes, codes, rules,
regulations, ordinances, orders, writs, decrees and injunctions, of any
Governmental Authority and any and all legally binding conditions, standards,
prohibitions, requirements and judgments of any Governmental Authority.

            "Indemnified Party" means the Purchaser and any of its officers,
directors, employees, agents, representatives, assignees and Affiliates and any
Person who controls the Purchaser or its Affiliates within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act.

<PAGE>

            "Indenture" means the Indenture dated as of April 1, 2001, and as
amended and restated through and including November 25, 2003, between the Issuer
as Issuer and Wells Fargo Bank Minnesota, National Association as Indenture
Trustee, as the same may be further amended or supplemented from time to time.

            "Investment Company Act" shall have the meaning provided in Section
5.01(i).

            "Lien" means, with respect to any asset, (a) any mortgage, lien,
pledge, charge, security interest, hypothecation, option or encumbrance of any
kind in respect of such asset or (b) the interest of a vendor or lessor under
any conditional sale agreement, financing lease or other title retention
agreement relating to such asset.

            "Loan Originator" means Option One Mortgage Corporation, a
California corporation.

            "Maximum Note Principal Balance" means an amount equal to (i) on any
date through and including December 30, 2003 and on or after January 1, 2004,
$2,000,000,000 or (ii) on December 31, 2003, $1,500,000,000, in each case less
(i) any reductions pursuant to Section 2.06(a) of the Sale and Servicing
Agreement, less (ii) the aggregate outstanding principal balance of the Option
One Owner Trust 2001-1A Mortgage-Backed Note issued by the Option One Owner
Trust 2001-1 A, and less (iii) the aggregate amount outstanding from time to
time under any secured loan or repurchase facility entered into by Steamboat, or
its Affiliates, and Option One Mortgage Corporation, or its Subsidiaries.

            "Purchaser" means the Purchaser and its permitted successors and
assigns.

            "Purchased Note" means the Option One Owner Trust 2001-1B
Mortgage-Backed Note issued by the Issuer pursuant to the Indenture.

            "Residual Security" Any security sold to the Trust hereunder and
pledged to the Indenture Trustee, which security must be (i) a mortgage-backed
security issued by Option One Mortgage Acceptance Corp. and evidencing an
interest in a securitization trust backed by residential mortgage loans, which
mortgage loans are serviced by Option One Mortgage Corporation (in such
capacity, "Option One") (including, without limitation, securities designated as
class C certificates and class P certificates that meet the foregoing criteria)
or (ii) a net interest margin security issued by a trust sponsored by Option One
and backed by class C certificates and/or Class P certificates, which
certificates are in turn backed by residential mortgage loans serviced by Option
One.

            "Sale and Servicing Agreement" means the Sale and Servicing
Agreement dated as of April 1, 2001, and as amended and restated through and
including April 16, 2004, among the Issuer, the Depositor, the Loan Originator,
the Servicer and Wells Fargo Bank Minnesota, National Association as the
Indenture Trustee, as the same may be further amended or supplemented from time
to time.

            "Secured Loan Facility" means the secured loan facility entered into
by Option One Mortgage Corporation and Greenwich Capital Financial Products,
Inc., as evidence by the Master Loan and Security Agreement, dated May 2, 2002,
between Option One Mortgage Corporation and

                                       2
<PAGE>

Greenwich Capital Financial Products, Inc., as amended or restated from time to
time, and the promissory note of Option One Mortgage Corporation in favor of
Greenwich Capital Financial Products, Inc. entered into in connection therewith.

            "Servicer" means Option One Mortgage Corporation or its permitted
successors and assigns.

            SECTION 1.02 Other Definitional Provisions.

            (a) All terms defined in this Note Purchase Agreement shall have the
defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.

            (b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Section
1.01, and accounting terms partially defined in Section 1.01 to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of accounting
terms herein are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained herein shall control.

            (c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Note Purchase Agreement shall refer to this
Note Purchase Agreement as a whole and not to any particular provision of this
Note Purchase Agreement; and Section, subsection, Schedule and Exhibit
references contained in this Note Purchase Agreement are references to Sections,
subsections, and Exhibits in or to this Note Purchase Agreement unless otherwise
specified.

                                   ARTICLE II

                            CLOSING AND PURCHASES OF
                       ADDITIONAL NOTE PRINCIPAL BALANCES

            SECTION 2.01 Closing. The closing (the "Closing") of the execution
of the Basic Documents shall take place at 10:00 a.m. at the offices of Thacher
Proffitt & Wood, 2 World Trade Center, New York, New York 10048 on April 27,
2001, or if the conditions to closing set forth in Article IV of this Note
Purchase Agreement shall not have been satisfied or waived by such date, as soon
as practicable after such conditions shall have been satisfied or waived, or at
such other time, date and place as the parties shall agree upon (the date of the
Closing being referred to herein as the "Closing Date").

            SECTION 2.02 Requests for Purchase of Additional Note Principal
Balances; Collateral Value Increase Dates.

            (a) At any time during the Revolving Period at least two Business
Days prior to a proposed Transfer Date or Funding Date, to the extent that the
aggregate outstanding Note Principal Balance of the Purchased Note (after giving
effect to the proposed purchase) is less than the

                                       3
<PAGE>

Maximum Note Principal Balance, and subject to the terms and conditions hereof
and in accordance with the other Basic Documents, the Issuer may request that
the Purchaser purchase Additional Note Principal Balances (each such request, a
Purchase Request"). Each Purchase Request shall identify (i) with respect to
each Transfer Date, the proposed Transfer Date and an estimate of the number of
Loans or Residual Securities and aggregate Principal Balance of such Loans and
aggregate Principal Balance of such Residual Securities to be purchased by the
Issuer on such Transfer Date and (ii) with respect to each Funding Date, the
proposed Funding Date and the aggregate Receivables Balance of the Receivables
to be purchased by the Advance Trust on such Funding Date. On the identified
Transfer Date or Funding Date, the Purchaser may (in the exercise of its sole
and absolute discretion) purchase the Additional Note Principal Balances
requested in the Purchase Request, subject to the terms and conditions and in
reliance upon the covenants, representations and warranties set forth herein and
in the other Basic Documents.

            (b) On any Collateral Value Increase Date during the Revolving
Period, to the extent that the Note Principal Balance (after giving effect to
the proposed increase in the Note Principal Balance) is less than the Maximum
Note Principal Balance, and subject to the terms and conditions hereof and in
accordance with the other Basic Documents, the Issuer may request that the
Purchaser purchase Additional Note Principal Balances equal to the related
increase in the Collateral Value of the related Mortgage Loans. The Purchaser
may in its sole discretion agree to purchase such Additional Note Principal
Balances.

                                   ARTICLE III

                        TRANSFER DATES AND FUNDING DATES

            SECTION 3.01 Transfer Dates.

            (a) Subject to the conditions and terms set forth herein and in
Section 2.06(a) of the Sale and Servicing Agreement with respect to each
Transfer Date, the Purchaser's purchase of Additional Note Principal Balances
shall be subject to the satisfaction, as of the applicable Transfer Date, of
each of the following additional conditions:

                  (i) With respect to each Transfer Date, each condition set
forth in Section 2.06(a) of the Sale and Servicing Agreement shall have been
satisfied;

                  (ii) Each of the representations and warranties of the Issuer,
the Servicer, the Loan Originator and the Depositor made in the Basic Documents
shall be true and correct as of such date (except to the extent they expressly
relate to an earlier or later time);

                  (iii) The Issuer, the Servicer, the Loan Originator and the
Depositor shall be in compliance with all of their respective covenants
contained in the Basic Documents and the Purchased Note;

                  (iv) No Event of Default and no Default shall have occurred or
shall be occurring; and

                                       4
<PAGE>

                  (v) With respect to each Transfer Date, the Purchaser shall
have received evidence reasonably satisfactory to it of the completion of all
recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the assignments
required to be effected on such Transfer Date in accordance with the Sale and
Servicing Agreement and the Residual Securities Transfer Agreement, including,
without limitation, the assignment of the Loans and the Residual Securities and
the proceeds thereof required to be assigned pursuant to the related LPA
Assignment, RSTA Assignment, S&SA Assignment and the Indenture.

            (b) The Purchaser shall determine in its reasonable discretion
whether each of the above conditions have been met in accordance with the Sale
and Servicing Agreement and its determination shall be binding on the parties
hereto.

            (c) The price paid by the Purchaser on each Transfer Date for the
Additional Note Principal Balance purchased on such Transfer Date shall be equal
to the amount of such Additional Note Principal Balance, and shall be remitted
not later than 4:00 p.m. New York City time on the Transfer Date by wire
transfer of immediately available funds to the Advance Account.

            (d) The Purchaser shall record on the schedule attached to the
Purchased Note, the date and amount of any Additional Note Principal Balance
purchased by it; provided, that failure to make such recordation on such
schedule or any error in such schedule shall not adversely affect the
Purchaser's rights with respect to its Note Principal Balance and its right to
receive interest payments in respect of the Note Principal Balance actually
held. Absent manifest error, the Note Principal Balance of the Purchased Note as
set forth in the Purchaser's records shall be binding upon the parties hereto,
notwithstanding any notation or record made or kept by any other party hereto.

            SECTION 3.02 Funding Dates.

            (a) Subject to the conditions and terms set forth herein and in
Section 2.06 of the Sale and Servicing Agreement with respect to each Funding
Date, the Purchaser's purchase of Additional Note Principal Balances shall be
subject to the satisfaction, as of the applicable Funding Date, of each of the
following additional conditions:

                  (i) With respect to each Funding Date, each condition set
forth in Section 2.06 of the Sale and Servicing Agreement shall have been
satisfied;

                  (ii) Each of the representations and warranties of the Issuer,
the Servicer, the Loan Originator and the Depositor made in the Basic Documents
shall be true and correct as of such date (except to the extent they expressly
relate to an earlier or later time);

                  (iii) The Issuer, the Servicer, the Loan Originator and the
Depositor shall be in compliance with all of their respective covenants
contained in the Basic Documents and the Purchased Note;

                  (iv) No Event of Default and no Default shall have occurred or
shall be occurring; and

                                       5
<PAGE>

                  (v) With respect to each Funding Date, the Purchaser shall
have received evidence reasonably satisfactory to it of the completion of all
recordings, registrations, and filings as may be necessary or, in the reasonable
opinion of the Purchaser, desirable to perfect or evidence the Indenture
Trustee's security interest in the Advance Note and the proceeds thereof.

                                       6
<PAGE>

                                   ARTICLE IV

                              CONDITIONS PRECEDENT

            SECTION 4.01 Closing Subject to Conditions Precedent. The Closing of
the Basic Documents is subject to the satisfaction at the time of the Closing of
the following conditions (any or all of which may be waived by the Purchaser in
its sole discretion):

            (a) Performance by the Issuer, the Depositor, the Servicer and the
Loan Originator. All the terms, covenants, agreements and conditions of the
Basic Documents to be complied with and performed by the Issuer, the Depositor,
the Servicer and the Loan Originator on or before the Closing Date shall have
been complied with and performed in all material respects.

            (b) Representations and Warranties. Each of the representations and
warranties of the Issuer, the Depositor, the Servicer and the Loan Originator
made in the Basic Documents shall be true and correct in all material respects
as of the Closing Date (except to the extent they expressly relate to an earlier
or later time).

            (c) Officer's Certificate. The Purchaser shall have received in form
and substance reasonably satisfactory to the Purchaser an Officer's Certificate
from the Loan Originator, the Depositor and the Servicer and a certificate of an
Authorized Officer of the Issuer, dated the Closing Date, certifying to the
satisfaction of the conditions set forth in the preceding paragraphs (a) and
(b).

            (d) Opinions of Counsel to the Issuer, the Loan Originator, the
Servicer and the Depositor. Counsel to the Issuer, the Loan Originator, the
Servicer and the Depositor shall have delivered to the Purchaser favorable
opinions, dated as of the Closing Date and satisfactory in form and substance to
the Purchaser and its counsel. In addition to the foregoing, the Loan Originator
shall have caused its counsel to deliver to the Purchaser a favorable opinion to
the effect that the Issuer will not be treated as an association (or publicly
traded partnership) taxable as a corporation or as a taxable mortgage pool, for
federal income tax purposes.

            (e) Opinions of Counsel to the Indenture Trustee. Counsel to the
Indenture Trustee shall have delivered to the Purchaser a favorable opinion,
dated as of the Closing Date and reasonably satisfactory in form and substance
to the Purchaser and its counsel.

            (f) Opinions of Counsel to the Owner Trustee. Delaware counsel to
the Owner Trustee of the Issuer and the Depositor shall have delivered to the
Purchaser favorable opinions regarding the formation, existence and standing of
the Issuer and the Depositor and of the Issuer's and the Depositor's execution,
authorization and delivery of each of the Basic Documents to which it is a party
and such other matters as the Purchaser may reasonably request, dated as of the
Closing Date and reasonably satisfactory in form and substance to the Purchaser
and its counsel.

            (g) Filings and Recordations. The Purchaser shall have received
evidence reasonably satisfactory to it of (i) the completion of all recordings,
registrations, and filings as may be necessary or, in the reasonable opinion of
the Purchaser, desirable to perfect or evidence the assignment by the Loan
Originator to the Depositor of the Loan Originator's ownership interest in

                                       7
<PAGE>

the Trust Estate including, without limitation, the Loans conveyed pursuant to
the Loan Purchase Agreement and the proceeds thereof and the Residual Securities
conveyed pursuant to the Residual Securities Transfer Agreement and the proceeds
thereof, (ii) the completion of all recordings, registrations and filings as may
be necessary or, in the reasonable opinion of the Purchaser, desirable to
perfect or evidence the assignment by the Depositor to the Issuer of the
Depositor's ownership interest in the Trust Estate including, without
limitation, the Loans and the Residual Securities and the proceeds thereof and
(iii) the completion of all recordings, registrations, and filings as may be
necessary or, in the reasonable opinion of the Purchaser, desirable to perfect
or evidence the grant of a first priority perfected security interest in the
Issuer's ownership interest in the Trust Estate including, without limitation,
the Loans and the Residual Securities, in favor of the Indenture Trustee,
subject to no Liens prior to the Lien of the Indenture.

            (h) Documents. The Purchaser shall have received a duly executed
counterpart of each of the Basic Documents, in form acceptable to the Purchaser,
the Purchased Note and each and every document or certification delivered by any
party in connection with any of the Basic Documents or the Purchased Note, and
each such document shall be in full force and effect.

            (i) Actions or Proceedings. No action, suit, proceeding or
investigation by or before any Governmental Authority shall have been instituted
to restrain or prohibit the consummation of, or to invalidate, any of the
transactions contemplated by the Basic Documents, the Purchased Note and the
documents related thereto in any material respect.

            (j) Approvals and Consents. All Governmental Actions of all
Governmental Authorities required with respect to the transactions contemplated
by the Basic Documents, the Purchased Note and the documents related thereto
shall have been obtained or made.

            (k) Accounts. The Purchaser shall have received evidence reasonably
satisfactory to it that each Trust Account has each been established in
accordance with the terms of the Sale and Servicing Agreement.

            (l) Fees and Expenses. The fees and expenses payable by the Issuer
and the Depositor pursuant to Section 8.02(b) shall have been paid.

            (m) Other Documents. The Issuer, the Loan Originator, the Depositor
and the Servicer shall have furnished to the Purchaser such other opinions,
information, certificates and documents as the Purchaser may reasonably request.

            (n) Proceedings in Contemplation of Sale of Purchased Note. All
actions and proceedings undertaken by the Issuer, the Loan Originator, the
Depositor and the Servicer in connection with the issuance and sale of the
Purchased Note as herein contemplated shall be satisfactory in all respects to
the Purchaser and its counsel.

            (o) Financial Covenants. The Loan Originator and the Servicer shall
be in compliance with the financial covenants set forth in Section 7.02 of the
Sale and Servicing Agreement.

                                       8
<PAGE>

            (p) Trust Accounts Control Agreements. The Purchaser shall have
received control agreements relating to the Trust Accounts satisfactory to the
Purchaser.

            If any condition specified in this Section 4.01 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Purchaser by notice to the Loan Originator at any time at or prior to the
Closing Date, and the Purchaser shall incur no liability as a result of such
termination.

                                   ARTICLE V

                         REPRESENTATIONS AND WARRANTIES
                        OF THE ISSUER AND THE DEPOSITOR

            The Issuer and the Depositor hereby jointly and severally make the
following representations and warranties to the Purchaser, as of the Closing
Date, and as of each Transfer Date and each Funding Date, and the Purchaser
shall be deemed to have relied on such representations and warranties in making
purchases of Additional Note Principal Balances on each Transfer Date and each
Funding Date:

            SECTION 5.01 Issuer.

            (a) The Issuer has been duly organized and is validly existing and
in good standing as a statutory trust under the laws of the State of Delaware,
with requisite trust power and authority to own its properties and to transact
the business in which it is now engaged, and is duly qualified to do business
and is in good standing (or is exempt from such requirements) in each State of
the United States where the nature of its business requires it to be so
qualified and the failure to be so qualified and in good standing would have a
material adverse effect on the Issuer or any adverse effect on the interests of
the Purchaser.

            (b) The issuance, sale, assignment and conveyance of the Purchased
Note and the Additional Note Principal Balances, the performance of the Issuer's
obligations under each Basic Document to which it is a party and the
consummation of the transactions therein contemplated will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien (other than any Lien
created by the Basic Documents), charge or encumbrance upon any of the property
or assets of the Issuer or any of its Affiliates pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it or any of its Affiliates is bound or to which any of its
property or assets is subject, nor will such action result in any violation of
the provisions of its organizational documents or any Governmental Rule
applicable to the Issuer, in each case which could be expected to have a
material adverse effect on the transactions contemplated therein.

            (c) No Governmental Action which has not been obtained is required
by or with respect to the Issuer in connection with the execution and delivery
to the Purchaser of the Purchased Note. No Governmental Action which has not
been obtained is required by or with respect to the Issuer in connection with
the execution and delivery of any of the Basic Documents to which the Issuer is
a party or the consummation by the Issuer of the transactions contemplated
thereby except

                                       9
<PAGE>

for any requirements under state securities or "blue sky" laws in connection
with any transfer of the Purchased Note.

            (d) The Issuer possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now operated by
it, and has not received any notice of proceedings relating to the revocation or
modification of any such license, certificate, authority or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect its condition, financial or
otherwise, or its earnings, business affairs or business prospects.

            (e) Each of the Basic Documents to which the Issuer is a party has
been duly authorized, executed and delivered by the Issuer and is a valid and
legally binding obligation of the Issuer, enforceable against the Issuer in
accordance with its terms, subject to enforcement of bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.

            (f) The execution, delivery and performance by the Issuer of each of
its obligations under each of the Basic Documents to which it is a party will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any agreement or instrument to which the Issuer is a
party or by which the Issuer is bound or to which any of its properties are
subject or of any statute, order or regulation applicable to the Issuer of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Issuer or any of its properties, in each case which could
be expected to have a material adverse effect on any of the transactions
contemplated therein.

            (g) The Issuer is not in violation of its organizational documents
or in default under any agreement, indenture or instrument the effect of which
violation or default would be material to the Issuer or the transactions
contemplated by the Basic Documents. The Issuer is not a party to, bound by or
in breach or violation of any indenture or other agreement or instrument, or
subject to or in violation of any statute, order or regulation of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Issuer that materially and adversely affects, or may in the future
materially and adversely affect (i) the ability of the Issuer to perform its
obligations under any of the Basic Documents to which it is a party or (ii) the
business, operations, financial condition, properties, assets or prospects of
the Issuer.

            (h) There are no actions or proceedings against, or investigations
of, the Issuer pending, or, to the knowledge of the Issuer threatened, before
any Governmental Authority, court, arbitrator, administrative agency or other
tribunal (i) asserting the invalidity of any of the Basic Documents, or (ii)
seeking to prevent the issuance of the Purchased Note or the consummation of any
of the transactions contemplated by the Basic Documents or the Purchased Note,
or (iii) that, if adversely determined, could materially and adversely affect
the business, operations, financial condition, properties, assets or prospects
of the Issuer or the validity or enforceability of, or the performance by the
Issuer of its respective obligations under, any of the Basic Documents to which
it is a party or (iv) seeking to affect adversely the income tax attributes of
the Purchased Note.

                                       10
<PAGE>

            (i) The Issuer is not, and neither the issuance and sale of the
Purchased Note to the Purchaser nor the activities of the Issuer pursuant to the
Basic Documents, shall render the Issuer an "investment company" or under the
"control" of an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").

            (j) It is not necessary to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.

            (k) The Issuer is solvent and has adequate capital for its business
and undertakings.

            (l) The chief executive offices of the Issuer are located at Option
One Owner Trust 2001-1B, c/o Wilmington Trust Company, as Owner Trustee, One
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, or,
with the consent of the Purchaser, such other address as shall be designated by
the Issuer in a written notice to the other parties hereto.

            (m) There are no contracts, agreements or understandings between the
Issuer and any Person granting such Person the right to require the filing at
any time of a registration statement under the Act with respect to the Purchased
Note.

            SECTION 5.02 Securities Act. Assuming the accuracy of the
representations and warranties of and compliance with the covenants of the
Purchaser, contained herein, the sale of the Purchased Note and the sale of
Additional Note Principal Balances pursuant to this Agreement are each exempt
from the registration and prospectus delivery requirements of the Act. In the
case of the offer or sale of the Purchased Note, no form of general solicitation
or general advertising was used by the Issuer, any Affiliates of the Issuer or
any person acting on its or their behalf, including, but not limited to,
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. Neither the Issuer, any Affiliates of the
Issuer nor any Person acting on its or their behalf has offered or sold, nor
will the Issuer or any Person acting on its behalf offer or sell directly or
indirectly, the Purchased Note or any other security in any manner that,
assuming the accuracy of the representations and warranties and the performance
of the covenants given by the Purchaser and compliance with the applicable
provisions of the Indenture with respect to each transfer of the Purchased Note,
would render the issuance and sale of the Purchased Note as contemplated hereby
a violation of Section 5 of the Securities Act or the registration or
qualification requirements of any state securities laws, nor has any such Person
authorized, nor will it authorize, any Person to act in such manner.

            SECTION 5.03 No Fee. Neither the Issuer, nor the Depositor, nor any
of their Affiliates has paid or agreed to pay to any Person any compensation for
soliciting another to purchase the Purchased Note.

            SECTION 5.04 Information. The information provided pursuant to
Section 7.01 (a) hereof will, at the date thereof, be true and correct in all
material respects.

                                       11
<PAGE>

            SECTION 5.05 The Purchased Note. The Purchased Note has been duly
and validly authorized, and, when executed and authenticated in accordance with
the terms of the Indenture, and delivered to and paid for in accordance with
this Note Purchase Agreement, will be duly and validly issued and outstanding
and will be entitled to the benefits of the Indenture.

            SECTION 5.06 Use of Proceeds. No proceeds of a purchase hereunder
will be used (i) for a purpose that violates or would be inconsistent with
Regulations T, U or X promulgated by the Board of Governors of the Federal
Reserve System from time to time or (ii) to acquire any security in any
transaction in violation of Section 13 or 14 of the Exchange Act.

            SECTION 5.07 The Depositor. The Depositor hereby makes to the
Purchaser each of the representations, warranties and covenants set forth in
Section 3.01 of the Sale and Servicing Agreement as of the Closing Date and as
of each Transfer Date (except to the extent that any such representation,
warranty or covenant is expressly made as of another date).

            SECTION 5.08 Taxes, etc. Any taxes, fees and other charges of
Governmental Authorities applicable to the Issuer and the Depositor, except for
franchise or income taxes, in connection with the execution, delivery and
performance by the Issuer and the Depositor of each Basic Document to which they
are parties, the issuance of the Purchased Note or otherwise applicable to the
Issuer or the Depositor in connection with the Trust Estate have been paid or
will be paid by the Issuer or the Depositor, as applicable, at or prior to the
Closing Date or Transfer Date, to the extent then due.

            SECTION 5.09 Financial Condition. On the date hereof and on each
Transfer Date and each Funding Date, neither the Issuer nor the Depositor is or
will be insolvent or the subject of any voluntary or involuntary bankruptcy
proceeding.

                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES
                         WITH RESPECT TO THE PURCHASER

            The Purchaser hereby makes the following representations and
warranties, as to itself, to the Issuer and the Depositor on which the same are
relying in entering into this Note Purchase Agreement.

            SECTION 6.01 Organization. The Purchaser has been duly organized and
is validly existing and in good standing under the laws of the jurisdiction of
its organization with power and authority to own its properties and to transact
the business in which it is now engaged.

            SECTION 6.02 Authority, etc. The Purchaser has all requisite power
and authority to enter into and perform its obligations under this Note Purchase
Agreement and to consummate the transactions herein contemplated. The execution
and delivery by the Purchaser of this Note Purchase Agreement and the
consummation by the Purchaser of the transactions contemplated hereby have been
duly and validly authorized by all necessary organizational action on the part
of the Purchaser. This Note Purchase Agreement has been duly and validly
executed and delivered by

                                       12
<PAGE>

the Purchaser and constitutes a legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject as to enforcement to bankruptcy, reorganization, insolvency, moratorium
and other similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. Neither the execution and
delivery by the Purchaser of this Note Purchase Agreement nor the consummation
by the Purchaser of any of the transactions contemplated hereby, nor the
fulfillment by the Purchaser of the terms hereof, will conflict with, or
violate, result in a breach of or constitute a default under any term or
provision of the Purchaser's organizational documents or any Governmental Rule
applicable to the Purchaser.

            SECTION 6.03 Securities Act. The Purchaser will acquire the
Purchased Note pursuant to this Note Purchase Agreement without a view to any
public distribution thereof, and will not offer to sell or otherwise dispose of
the Purchased Note (or any interest therein) in violation of any of the
registration requirements of the Act or any applicable state or other securities
laws, or by means of any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) and will comply
with the requirements of the Indenture. The Purchaser acknowledges that it has
no right to require the Issuer or any other Person to register the Purchased
Note under the Securities Act or any other securities law.

            SECTION 6.04 Conflicts With Law. The execution, delivery and
performance by the Purchaser of its obligations under this Note Purchase
Agreement will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any agreement or instrument to
which the Purchaser is a party or by which the Purchaser is bound or of any
statute, order or regulation applicable to the Purchaser of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over the Purchaser, in each case which could be expected to have a material
adverse effect on the transactions contemplated therein.

            SECTION 6.05 Conflicts With Agreements, etc. The Purchaser is not in
violation of its organizational documents or in default under any agreement,
indenture or instrument the effect of which violation or default would be
materially adverse to the Purchaser in the performance of its obligations or
duties under any of the Basic Documents to which it is a party. The Purchaser is
not a party to, bound by or in breach or violation of any indenture or other
agreement or instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or governmental
body having jurisdiction over the Purchaser that materially and adversely
affects, or which could be expected in the future to materially and adversely
affect the ability of the Purchaser to perform its obligations under this Note
Purchase Agreement.

                                   ARTICLE VII

                    COVENANTS OF THE ISSUER AND THE DEPOSITOR

            SECTION 7.01 Information from the Issuer. So long as the Purchased
Note remains outstanding, the Issuer and the Depositor shall each furnish to the
Purchaser:

            (a) such information (including financial information), documents,
records or reports with respect to the Trust Estate, the Loans, the Residual
Securities, the Advance Note, the

                                       13
<PAGE>

Issuer, the Loan Originator, the Servicer or the Depositor as the Purchaser may
from time to time reasonably request;

            (b) as soon as possible and in any event within five (5) Business
Days after the occurrence thereof, notice of each Event of Default under the
Sale and Servicing Agreement or the Indenture, and each Default; and

            (c) promptly and in any event within 30 days after the occurrence
thereof, written notice of a change in address of the chief executive office of
the Issuer, the Loan Originator or the Depositor.

            SECTION 7.02 Access to Information. So long as the Purchased Note
remains outstanding, each of the Issuer and the Depositor shall, at any time and
from time to time during regular business hours, or at such other reasonable
times upon reasonable notice to the Issuer or the Depositor, as applicable,
permit the Purchaser, or their agents or representatives to:

            (a) examine all books, records and documents (including computer
tapes and disks) in the possession or under the control of the Issuer or the
Depositor relating to the Loans, the Residual Securities or the Basic Documents
as may be requested, and

            (b) visit the offices and property of the Issuer and the Depositor
for the purpose of examining such materials described in clause (a) above.

            Except as provided in Section 10.05, information obtained by the
Purchaser pursuant to this Section 7.02 and Section 7.01 herein shall be held in
confidence in accordance with and to the extent provided in Sections 11.15 and
11.17 of the Sale and Servicing Agreement.

            SECTION 7.03 Ownership and Security Interests; Further Assurances.
The Depositor will take all action necessary to maintain the Issuer's ownership
interest in the Loans, the Residual Securities and he other items sold pursuant
to Article II of the Sale and Servicing Agreement. The Issuer will take all
action necessary to maintain the Indenture Trustee's security interest in the
Loans, the Residual Securities and the other items pledged to the Indenture
Trustee pursuant to the Indenture.

            The Issuer and the Depositor agree to take any and all acts and to
execute any and all further instruments reasonably necessary or requested by the
Purchaser to more fully effect the purposes of this Note Purchase Agreement.

            SECTION 7.04 Covenants. The Issuer and the Depositor shall each duly
observe and perform each of their respective covenants set forth in each of the
Basic Documents to which they are parties.

            SECTION 7.05 Amendments. Neither the Issuer nor the Depositor shall
make, or permit any Person to make, any amendment, modification or change to, or
provide any waiver under any Basic Document to which the Issuer or the
Depositor, as applicable, is a party without the prior written consent of the
Purchaser.

                                       14
<PAGE>

            SECTION 7.06 With Respect to the Exempt Status of the Purchased
Note.

            (a) Neither the Issuer nor the Depositor, nor any of their
respective Affiliates, nor any Person acting on their behalf will, directly or
indirectly, make offers or sales of any security, or solicit offers to buy any
security, under circumstances that would require the registration of the
Purchased Note under the Securities Act.

            (b) Neither the Issuer nor the Depositor, nor any of their
Affiliates, nor any Person acting on their behalf will engage in any form of
general solicitation or general advertising (within the meaning of Regulation D
promulgated under the Securities Act) in connection with any offer or sale of
the Purchased Note.

            (c) On or prior to any Transfer Date or Funding Date, the Issuer and
the Depositor will furnish or cause to be furnished to the Purchaser and any
subsequent purchaser therefrom of Additional Note Principal Balance, if the
Purchaser or such subsequent purchaser so requests, a letter from each Person
furnishing a certificate or opinion on the Closing Date as described in Section
4.01 hereof or on or before any such Transfer Date or Funding Date in which such
Person shall state that such subsequent purchaser may rely upon such original
certificate or opinion as though delivered and addressed to such subsequent
purchaser and made on and as of the Closing Date or such Transfer Date or
Funding Date, as the case may be, except for such exceptions set forth in such
letter as are attributable to events occurring after the Closing Date or such
Transfer Date or Funding Date.

                                  ARTICLE VIII

                              ADDITIONAL COVENANTS

            SECTION 8.01 Legal Conditions to Closing. The parties hereto will
take all reasonable action necessary to obtain (and will cooperate with one
another in obtaining) any consent, authorization, permit, license, franchise,
order or approval of, or any exemption by, any Governmental Authority or any
other Person, required to be obtained or made by it in connection with any of
the transactions contemplated by this Note Purchase Agreement.

            SECTION 8.02 Expenses.

            (a) The Issuer and the Depositor jointly and severally covenant
that, whether or not the Closing takes place, except as otherwise expressly
provided herein, all reasonable costs and expenses incurred in connection with
this Note Purchase Agreement and the transactions contemplated hereby shall be
paid by the Issuer or the Depositor.

            (b) The Issuer and the Depositor jointly and severally covenant to
pay as and when billed by the Purchaser all of the reasonable out-of-pocket
costs and expenses incurred in connection with the consummation and
administration of the transactions contemplated hereby and in the other Basic
Documents including, without limitation, (i) all reasonable fees, disbursements
and expenses of counsel to the Purchaser, (ii) all reasonable fees and expenses
of the Indenture

                                       15
<PAGE>

Trustee and the Owner Trustee and their counsel and (iii) all reasonable fees
and expenses of the Custodian and its counsel.

            SECTION 8.03 Mutual Obligations. On and after the Closing, each
party hereto will do, execute and perform all such other acts, deeds and
documents as the other party may from time to time reasonably require in order
to carry out the intent of this Note Purchase Agreement.

            SECTION 8.04 Restrictions on Transfer. The Purchaser agrees that it
will comply with the restrictions on transfer of the Purchased Note set forth in
the Indenture and resell the Purchased Note only in compliance with such
restrictions.

            SECTION 8.05 Confidentiality. Each of the Purchaser, the Issuer and
the Depositor shall hold in confidence all Confidential Information and shall
not, at any time hereafter, use, disclose or divulge any such information,
knowledge or data to any Person except:

            (a)   Information which at the time of disclosure is a part of the
                  public knowledge or literature and readily accessible;

            (b)   Information as required to be disclosed by a Governmental
                  Authority;

            (c)   Disclosure to a Person that has entered into a confidentiality
                  agreement, acceptable to the Purchaser, the Issuer and the
                  Depositor; or

            (d)   Information that is deemed by the Purchaser reasonably
                  necessary to disclose in connection with its exercise of any
                  rights or remedies under the Basic Documents.

            SECTION 8.06 Information Provided by the Purchaser. The Purchaser
hereby covenants to determine One-Month LIBOR in accordance with the definition
thereof in the Basic Documents and shall give notice to the Indenture Trustee,
the Issuer and the Depositor of the Interest Payment Amount on each
Determination Date. The Purchaser shall cause the Market Value Agent to give
notice to the Indenture Trustee, the Issuer and the Depositor of any Hedge
Funding Requirement on or before the Determination Date related to any Payment
Date. In addition, on each Determination Date, the Purchaser hereby covenants to
give notice to the Indenture Trustee, the Issuer and the Depositor of (i) the
Issuer/Depositor Indemnities (as defined in the Trust Agreement), (ii) Due
Diligence Fees and (iii) the Collateral Value for each Loan and each Residual
Security for the related Payment Date.

                                   ARTICLE IX

                                 INDEMNIFICATION

            SECTION 9.01 Indemnification of Purchaser. Each of the Issuer and
the Depositor hereby agree to, jointly and severally, indemnify and hold
harmless each Indemnified Party against any and all losses, claims, damages,
liabilities, expenses or judgments (including accounting fees and reasonable
legal fees and other expenses incurred in connection with this Note Purchase

                                       16
<PAGE>

Agreement or any other Basic Document and any action, suit or proceeding or any
claim asserted) (collectively, "Losses"), as incurred (payable promptly upon
written request), for or on account of or arising from or in connection with any
information prepared by and furnished or to be furnished by any of the Issuer,
the Loan Originator, the Depositor, the Advance Trust, the Advance Depositor or
the Receivables Seller pursuant to or in connection with the transactions
contemplated hereby including, without limitation, such written information as
may have been and may be furnished in connection with any due diligence
investigation with respect to the business, operations, financial condition of
the Issuer, the Loan Originator, the Depositor, the Advance Trust, the Advance
Depositor or the Receivables Seller or with respect to the Loans, the Residual
Securities or the Advance Note, to the extent such information contains any
untrue statement of material fact or omits to state a material fact necessary to
make the statements contained therein in the light of the circumstances under
which such statements were made not misleading, except with respect to any such
information used by such Indemnified Party in violation of the Basic Documents
which results in such Losses. The indemnities contained in this Section 9.01
will be in addition to any liability which the Issuer or the Depositor may
otherwise have pursuant to this Note Purchase Agreement and any other Basic
Document.

                                    ARTICLE X

                                  MISCELLANEOUS

            SECTION 10.01 Amendments. No amendment or waiver of any provision of
this Note Purchase Agreement shall in any event be effective unless the same
shall be in writing and signed by all of the parties hereto, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

            SECTION 10.02 Notices. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
telecopies) and mailed, telecopied (with a copy delivered by overnight courier)
or delivered, as to each party hereto, at its address as set forth in Schedule I
hereto or at such other address as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall be deemed effective upon receipt thereof, and in the case of telecopies,
when receipt is confirmed by telephone.

            SECTION 10.03 No Waiver; Remedies. No failure on the part of any
party hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

            SECTION 10.04 Binding Effect: Assignability.

            (a) This Note Purchase Agreement shall be binding upon and inure to
the benefit of the Issuer, the Depositor and the Purchaser and their respective
permitted successors and assigns (including any subsequent holders of the
Purchased Note); provided, however, neither the Issuer nor the Depositor shall
have any right to assign their respective rights hereunder or interest herein
(by operation of law or otherwise) without the prior written consent of the
Purchaser.

                                       17
<PAGE>

            (b) The Purchaser may, in the ordinary course of its business and in
accordance with the Basic Documents and applicable law, including applicable
securities laws, at any time sell to one or more Persons (each, a
"Participant"), participating interests in all or a portion of its rights and
obligations under this Note Purchase Agreement. Notwithstanding any such sale by
the Purchaser of participating interests to a Participant, the Purchaser's
rights and obligations under this Note Purchase Agreement shall remain
unchanged, the Purchaser shall remain solely responsible for the performance
thereof, and the Issuer and the Depositor shall continue to deal solely and
directly with the Purchaser and shall have no obligations to deal with any
Participant in connection with the Purchaser's rights and obligations under this
Note Purchase Agreement.

            (c) This Note Purchase Agreement shall create and constitute the
continuing obligation of the parties hereto in accordance with its terms, and
shall remain in full force and effect until such time as all amounts payable
with respect to the Purchased Note shall have been paid in full.

            SECTION 10.05 Provision of Documents and Information. Each of the
Issuer and the Depositor acknowledges and agrees that the Purchaser is permitted
to provide to any subsequent Purchaser, permitted assignees and Participants,
opinions, certificates, documents and other information relating to the Issuer,
the Depositor and the Loans and the Residual Securities delivered to the
Purchaser pursuant to this Note Purchase Agreement provided that with respect to
Confidential Information, such subsequent Purchaser, permitted assignees and
Participants agree to be bound by Section 8.05 hereof.

            SECTION 10.06 GOVERNING LAW; JURISDICTION. THIS NOTE PURCHASE
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS. EACH
OF THE PARTIES TO THIS NOTE PURCHASE AGREEMENT HEREBY AGREES TO THE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND
ANY APPELLATE COURT HAVING JURISDICTION TO REVIEW THE JUDGMENTS THEREOF. EACH OF
THE PARTIES HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

            SECTION 10.07 No Proceedings. Until the date that is one year and
one day after the last day on which any amount is outstanding under this Note
Purchase Agreement, the Depositor and the Purchaser hereby covenant and agree
that they will not institute against the Issuer or the Depositor, or join in any
institution against the Issuer or the Depositor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law.

            SECTION 10.08 Execution in Counterparts. This Note Purchase
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which when taken together shall constitute one and
the same agreement.

                                       18
<PAGE>

            SECTION 10.09 No Recourse - Purchaser and Depositor.

            (a) The obligations of the Purchaser under this Note Purchase
Agreement, or any other agreement, instrument, document or certificate executed
and delivered by or issued by the Purchaser or any officer thereof are solely
the partnership or corporate obligations of the Purchaser, as the case may be.
No recourse shall be had for payment of any fee or other obligation or claim
arising out of or relating to this Note Purchase Agreement or any other
agreement, instrument, document or certificate executed and delivered or issued
by the Purchaser or any officer thereof in connection therewith, against any
stockholder, limited partner, employee, officer, director or incorporator of the
Purchaser.

            (b) The obligations of the Depositor under this Note Purchase
Agreement, or any other agreement, instrument, document or certificate executed
and delivered by or issued by the Depositor or any officer thereof are solely
the partnership or corporate obligations of the Depositor, as the case may be.
No recourse shall be had for payment of any fee or other obligation or claim
arising out of or relating to this Note Purchase Agreement or any other
agreement, instrument, document or certificate executed and delivered or issued
by the Purchaser or any officer thereof in connection therewith, against any
stockholder, limited partner, employee, officer, director or incorporator of the
Depositor.

            (c) The Purchaser, by accepting the Purchased Note, acknowledges
that such Purchased Note represents an obligation of the Issuer and does not
represent an interest in or an obligation of the Loan Originator, the Servicer,
the Depositor, the Administrator, the Owner Trustee, the Indenture Trustee or
any Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Agreement,
the Purchased Note or the Basic Documents.

            SECTION 10.10 Survival. All representations, warranties, covenants,
guaranties and indemnifications contained in this Note Purchase Agreement and in
any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the sale, transfer or repayment of the
Purchased Note.

            SECTION 10.11 Tax Characterization. Each party to this Note Purchase
Agreement (a) acknowledges and agrees that it is the intent of the parties to
this Note Purchase Agreement that for all purposes, including federal, state and
local income, single business and franchise tax purposes, the Purchased Note
will be treated as evidence of indebtedness secured by the Loans and the
Residual Securities and the proceeds thereof and the trust created under the
Indenture will not be characterized as an association (or publicly traded
partnership) taxable as a corporation, (b) agrees to treat the Purchased Note
for federal, state and local income and franchise tax purposes as indebtedness
and (c) agrees that the provisions of all Basic Documents shall be construed to
further these intentions of the parties.

            SECTION 10.12 Conflicts. Notwithstanding anything contained herein
to the contrary, in the event of the conflict between the terms of the Sale and
Servicing Agreement and this Note Purchase Agreement, the terms of the Sale and
Servicing Agreement shall control.

                                       19
<PAGE>

            SECTION 10.13 Limitation on Liability. It is expressly understood
and agreed by the parties hereto that (a) this Note Purchase Agreement is
executed and delivered by Wilmington Trust Company, not individually or
personally, but solely as Owner Trustee of Option One Owner Trust 2001-1B, in
the exercise of the powers and authority conferred and vested in it, (b) each of
the representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Note Purchase Agreement or any other
related documents.

                            [SIGNATURE PAGE FOLLOWS]

                                       20
<PAGE>

            IN WITNESS WHEREOF, the parties have caused this Amended and
Restated Note Purchase Agreement to be executed by their respective officers
hereunto duly authorized, as of the date first above written.

                                     OPTION ONE OWNER TRUST 2001-1B
                                     By: Wilmington Trust Company
                                         not in its individual capacity but
                                         Solely as owner trustee

                                     By: /s/ Rachel L. Simpson
                                         ---------------------------------------
                                     Name: Rachel L. Simpson
                                     Title: Financial Services Officer

                                     OPTION ONE LOAN WAREHOUSE CORPORATION

                                     By: /s/ Charles R. Fulton
                                         ---------------------------------------
                                     Name: Charles R. Fulton
                                     Title: Assistant Secretary

                                     STEAMBOAT FUNDING CORPORATION

                                     By: /s/ ANDY YAN
                                         ---------------------------------------
                                     Name: ANDY YAN
                                     Title: VICE PRESIDENT
<PAGE>

                                   SCHEDULE I
                            INFORMATION FOR NOTICES

1.    if to the Issuer:

            Option One Owner Trust 2001-1B
            c/o Wilmington Trust Company
            as Owner Trustee
            One Rodney Square North
            1100 North Market Street
            Wilmington, Delaware 19890
            Attention: Corporate Trust Administration
            Telecopy: (302) 636-4144
            Telephone: (302) 651-1000

      with a copy to:

            Option One Mortgage Corporation
            3 Ada
            Irvine, California 92618
            Attention: William O'Neill
            Telecopy number: (949) 790-7540
            Telephone number: (949) 790-7504

2.    if to the Depositor:

            Option One Loan Warehouse Corporation
            3 Ada
            Irvine, California 92618
            Attention: William O'Neill
            Telecopy number: (949) 790-7540
            Telephone number: (949) 790-7504

3.    if to the Purchaser:

            Steamboat Funding Corporation
            c/o Lord Securities Corporation
            48 Wall Street
            New York, New York 10005
            Attention: Andy Yan
            Telecopy number: (212) 346-9012
            Telephone number: (212) 346-9007

      with a copy to:

            The Bank of New York
            32 Old Slip-15th Floor

                                       I-1
<PAGE>

            New York, New York 10286
            Attention: Robert Brady
            Attention: Wilson C. Mastrandrea
            Telecopy number: (212) 495-1012
            Telephone number: (212) 804-2187

      with a copy to:

            Greenwich Capital Financial Products, Inc.
            600 Steamboat Road
            Greenwich, Connecticut 06830
            Attn: Legal Department
            Telecopy: (203)618-2132
            Telephone: (203)618-2700

                                       I-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.61
<SEQUENCE>21
<FILENAME>c91685exv10w61.txt
<DESCRIPTION>AMENDMENT NO. 1 TO AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.61

                               AMENDMENT NO. 1 TO
                  AMENDED AND RESTATED NOTE PURCHASE AGREEMENT

            This Amendment No. 1 (this "Amendment"), dated as of April 29, 2005
amends the Amended and Restated Note Purchase Agreement, dated as of April 16,
2004 (the "Agreement"), among Option One Owner Trust 2001-1B, a Delaware
statutory trust (the "Company"), Steamboat Funding Corporation. a Delaware
corporation (the "Purchaser") and Option One Loan Warehouse Corporation, a
California corporation (the "Depositor").

                                    RECITALS

            WHEREAS, the parties hereto have entered into the Agreement;

            WHEREAS, the parties hereto now wish to amend certain provisions in
the Agreement pursuant to Section 10.01 of the Agreement;

            NOW, THEREFORE, in consideration of the promises and mutual
agreements contained herein, the parties hereto agree to amend the Agreement
pursuant to Section 10.01 of the Agreement and restate certain provisions
thereof as follows:

            1. Defined Terms. Unless defined in this Amendment, capitalized
terms used in this Amendment (including the preamble) shall have the meaning
given such terms in the Agreement.

            2. Amendment to Section 1.1 of the Agreement. The following defined
term in Section 1.1 of the Agreement are hereby deleted in their entirety and
substituted therefor the following:

            "Maximum Note Principal Balance" means an amount equal to (i) the
Maximum Note Principal Balance as defined in the Pricing Side Letter (including
only such portion thereof that is included at the sole discretion of the Initial
Noteholder as is actually advanced and then outstanding), less (i) any
reductions pursuant to Section 2.06 of the Sale and Servicing Agreement, less
(ii) the aggregate outstanding principal balance of the Option One Owner Trust
2001-1A Mortgage-Backed Note issued by the Option One Owner Trust 2001-1A and
less (iii) the aggregate amount outstanding from time to time under any secured
loan or repurchase facility entered into by Steamboat, or its Affiliates, and
Option One Mortgage Corporation, or its Subsidiaries.

            3. Amendment to Section 4.01(o) of the Agreement. Subsection (o) of
Section 4.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:
<PAGE>

            (o) Financial Covenants. The Loan Originator and the Servicer shall
be in compliance with the Financial Covenants.

            For the avoidance of doubt, this Amendment shall not affect the
obligation of the Loan Originator to pay at least $1,250,000 in release fees
earned during the period from July 8, 2002 to July 7, 2003.

            4. Amendment to Section 5.01(g) of the Agreement. Subsection (g) of
Section 5.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:

            (g) The Issuer is not in violation of its organizational documents
or in default under any agreement, indenture or instrument the effect of which
violation or default would be materially adverse to the Issuer or the
transactions contemplated by the Basic Documents. The Issuer is not a party to,
bound by or in breach or violation of any indenture or other agreement or
instrument, or subject to or in violation of any statute, order or regulation of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over the Issuer that materially and adversely affects, or may in
the future materially and adversely affect (i) the ability of the Issuer to
perform its obligations under any of the Basic Documents to which it is a party
or (ii) the business, operations, financial condition, properties, assets or
prospects of the Issuer.

            5. Amendment to Section 5.01(h) of the Agreement. Subsection (h) of
Section 5.01 of the Agreement is hereby deleted in its entirety and substituted
therefor with the following:

            (h) There are no actions or proceedings against, or investigations
of, the Issuer pending, or, to the knowledge of the Issuer threatened, before
any Governmental Authority, court, arbitrator, administrative agency or other
tribunal (i) asserting the invalidity of any of the Basic Documents, or (ii)
seeking to prevent the issuance of the Purchased Note or the consummation of any
of the transactions contemplated by the Basic Documents or the Purchased Note,
or (iii) that, if adversely determined, could materially and adversely affect
the validity or enforceability of, or the performance by the Issuer of its
respective obligations under, any of the Basic Documents to which it is a party
or (iv) seeking to affect adversely the income tax attributes of the Purchased
Note.

            5. Amendment to Section 8.05 of the Agreement. Section 8.05 of the
Agreement is hereby deleted in its entirety and substituted therefor with the
following:

            SECTION 8.05. Confidentiality. Each of the Purchaser, the Issuer and
the Depositor shall hold in confidence all Confidential Information and shall
not, at any time hereafter, use, disclose or divulge any such information,
knowledge or data to any Person except:

                                       2
<PAGE>

            (a)   Information which at the time of disclosure is a part of the
                  public knowledge or literature and readily accessible;

            (b)   Information as required to be disclosed by a Governmental
                  Authority;

            (c)   Disclosure to a Person that has entered into a confidentiality
                  agreement, acceptable to the Purchaser, the Issuer and the
                  Depositor; or

            (d)   Information that is deemed by the Purchaser reasonably
                  necessary to disclose in connection with its exercise of any
                  rights or remedies under the Basic Documents.

Nothing herein shall, however, prevent the ultimate corporate parent of the
Depositor, for so long as it shall be a company whose securities are registered
under the Securities Act, from disclosing the terms of, and filing with the
Securities and Exchange Commission copies of, and disseminating to other Persons
following such filing, the Basic Documents. All such disclosures are expressly
approved by all parties hereto.

            6. Condition to Effectiveness. As a condition to the effectiveness
of this Amendment, the Purchaser shall have given its consent.

            7. Effect of Amendment. Upon the execution of this Amendment and the
attached consent of Purchaser, the Agreement shall be modified and amended in
accordance herewith and the respective rights, limitations, obligations, duties,
liabilities and immunities of each party to the Agreement shall hereafter be
determined, exercised and enforced subject in all respects to such modifications
and amendments, and all the terms and conditions of this Amendment shall be and
be deemed to be part of the terms and conditions of the Agreement for any and
all purposes as of the date first set forth above. The Agreement, as amended
hereby, is hereby ratified and confirmed in all respects.

            8. The Agreement in Full Force and Effect as Amended. Except as
specifically amended hereby, all the terms and conditions of the Agreement shall
remain in full force and effect and, except as expressly provided herein, the
effectiveness of this Amendment shall not operate as, or constitute a waiver or
modification of, any right, power or remedy of any party to the Agreement. All
references to the Agreement in any other document or instrument shall be deemed
to mean the Agreement as amended by this Amendment.

            9. Counterparts. This Amendment may be executed by the parties in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement. This Amendment
shall become effective when counterparts hereof executed on behalf of such party
shall have been received.

                                       3
<PAGE>

            10. Governing Law. This Amendment shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed therein.

            IN WITNESS WHEREOF, the Company, the Purchaser and the Depositor
have caused this Amendment to be duly executed by their respective officers,
effective as of the day and year first above written.

                                 OPTION ONE OWNER TRUST 2001-1B,
                                 as Company

                                 By: WILMINGTON TRUST COMPANY,
                                 not in its individual capacity but solely as
                                 Owner Trustee

                                 By: /s/ Mary Kay Pupillo
                                     -------------------------------------------
                                     Name: Mary Kay Pupillo
                                     Title: Assistant Vice President

                                 STEAMBOAT FUNDING CORPORATION,
                                 as the Purchaser

                                 By: /s/ Andy Yan
                                     -------------------------------------------
                                     Name: Andy Yan
                                     Title: Vice President

                                 OPTION ONE LOAN WAREHOUSE CORPORATION
                                 as the Depositor

                                 By: ___________________________________________
                                     Name:
                                     Title:

                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.62
<SEQUENCE>22
<FILENAME>c91685exv10w62.txt
<DESCRIPTION>SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.62

================================================================================

                          SALE AND SERVICING AGREEMENT

                                      among

                     OPTION ONE OWNER TRUST 2003-4

                                   as Issuer

                                       and

                      OPTION ONE LOAN WAREHOUSE CORPORATION

                                  as Depositor

                                       and

                        OPTION ONE MORTGAGE CORPORATION
                        as Loan Originator and Servicer

                                       and

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              as Indenture Trustee

                           Dated as of August 8, 2003

                          OPTION ONE OWNER TRUST 2003-4
                             MORTGAGE-BACKED NOTES

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                     <C>
ARTICLE I DEFINITIONS..........................................................................           1

   Section 1.01     Definitions................................................................           1
   Section 1.02     Other Definitional Provisions..............................................          28

ARTICLE II CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES..................          29

   Section 2.01     Conveyance of the Trust Estate; Additional Note Principal
                    Balances...................................................................          29
   Section 2.02     Ownership and Possession of Loan Files.....................................          31
   Section 2.03     Books and Records; Intention of the Parties................................          31
   Section 2.04     Delivery of Loan Documents.................................................          32
   Section 2.05     Acceptance by the Indenture Trustee of the Loans; Certain..................          33
   Section 2.06     Conditions Precedent to Transfer Dates.....................................          34
   Section 2.07     Termination of Revolving Period............................................          36
   Section 2.08     Correction of Errors.......................................................          37

ARTICLE III REPRESENTATIONS AND WARRANTIES.....................................................          37

   Section 3.01     Representations and Warranties of the Depositor............................          37
   Section 3.02     Representations and Warranties of the Loan Originator......................          39
   Section 3.03     Representations, Warranties and Covenants of the Servicer..................          42
   Section 3.04     Reserved...................................................................          44
   Section 3.05     Representations and Warranties Regarding Loans.............................          44
   Section 3.06     Purchase and Substitution..................................................          44
   Section 3.07     Dispositions...............................................................          46
   Section 3.08     Servicer Put; Servicer Call................................................          49
   Section 3.09     Modification of Underwriting Guidelines....................................          50

ARTICLE IV ADMINISTRATION AND SERVICING OF THE LOANS...........................................          50

   Section 4.01     Servicer's Servicing Obligations...........................................          50

ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION.................................          50

   Section 5.01     Collection Account and Distribution Account................................          50
   Section 5.02     Payments to Securityholders................................................          55
   Section 5.03     Trust Accounts; Trust Account Property.....................................          55
   Section 5.04     Advance Account............................................................          57
   Section 5.05     Transfer Obligation Account................................................          58
   Section 5.06     Transfer Obligation........................................................          59

ARTICLE VI STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS................................          60

   Section 6.01     Statements.................................................................          60
   Section 6.02     Specification of Certain Tax Matters.......................................          62
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                                                      <C>
   Section 6.03     Valuation of Loans, Hedge Value and Retained Securities Value;.............           63

ARTICLE VII  HEDGING; FINANCIAL COVENANTS......................................................           64

   Section 7.01     Hedging Instruments........................................................           64
   Section 7.02     Financial Covenants........................................................           65

ARTICLE VIII  THE SERVICER.....................................................................           65

   Section 8.01     Indemnification; Third Party Claims........................................           65
   Section 8.02     Merger or Consolidation of the Servicer....................................           67
   Section 8.03     Limitation on Liability of the Servicer and Others.........................           68
   Section 8.04     Servicer Not to Resign; Assignment.........................................           68
   Section 8.05     Relationship of Servicer to Issuer and the Indenture Trustee...............           68
   Section 8.06     Servicer May Own Securities................................................           69
   Section 8.07     Indemnification of the Indenture Trustee and Note Agent....................           69

ARTICLE IX  SERVICER EVENTS OF DEFAULT.........................................................           69

   Section 9.01     Servicer Events of Default.................................................           69
   Section 9.02     Appointment of Successor...................................................           71
   Section 9.03     Waiver of Defaults.........................................................           72
   Section 9.04     Accounting Upon Termination of Servicer....................................           73

ARTICLE X  TERMINATION; PUT OPTION.............................................................           73

   Section 10.01    Termination................................................................           73
   Section 10.02    Optional Termination.......................................................           74
   Section 10.03    Notice of Termination......................................................           74
   Section 10.04    Put Option.................................................................           74

ARTICLE XI  MISCELLANEOUS PROVISIONS...........................................................           75

   Section 11.01    Acts of Securityholders....................................................           75
   Section 11.02    Amendment..................................................................           75
   Section 11.03    Recordation of Agreement...................................................           76
   Section 11.04    Duration of Agreement......................................................           76
   Section 11.05    Governing Law..............................................................           76
   Section 11.06    Notices....................................................................           76
   Section 11.07    Severability of Provisions.................................................           77
   Section 11.08    No Partnership.............................................................           77
   Section 11.09    Counterparts...............................................................           77
   Section 11.10    Successors and Assigns.....................................................           77
   Section 11.11    Headings...................................................................           77
   Section 11.12    Actions of Securityholders.................................................           77
   Section 11.13    Non-Petition Agreement.....................................................           78
   Section 11.14    Holders of the Securities..................................................           78
   Section 11.15    Due Diligence Fees, Due Diligence..........................................           78
   Section 11.16    No Reliance................................................................           79
   Section 11.17    Confidential Information...................................................           80
   Section 11.18    Conflicts..................................................................           81
   Section 11.19    Limitation on Liability....................................................           81
</TABLE>

                                       ii

<PAGE>

<TABLE>
<S>                                                                                                      <C>
   Section 11.20       No Agency...............................................................           81
</TABLE>

                                      iii
<PAGE>

                          SALE AND SERVICING AGREEMENT

      This Sale and Servicing Agreement is entered into effective as of August
8, 2003, among OPTION ONE OWNER TRUST 2003-4, a Delaware business trust (the
"Issuer" or the "Trust"), OPTION ONE LOAN WAREHOUSE CORPORATION, a Delaware
corporation, as Depositor (in such capacity, the "Depositor"), OPTION ONE
MORTGAGE CORPORATION, a California corporation ("Option One"), as Loan
Originator (in such capacity, the "Loan Originator") and as Servicer (in such
capacity, the "Servicer"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION,
a national banking association, as Indenture Trustee on behalf of the
Noteholders (in such capacity, the "Indenture Trustee").

                                   WITNESSETH:

      In consideration of the mutual agreements herein contained, the Issuer,
the Depositor, the Loan Originator, the Servicer and the Indenture Trustee
hereby agree as follows for the benefit of each of them and for the benefit of
the holders of the Securities:

                                    ARTICLE I

                                  DEFINITIONS

      Section 1.01 Definitions.

      Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year and the actual number of
days elapsed in each Accrual Period.

      Accepted Servicing Practices: The Servicer's normal servicing practices in
servicing and administering similar mortgage loans for its own account, which in
general will conform to the mortgage servicing practices of prudent mortgage
lending institutions which service for their own account mortgage loans of the
same type as the Loans in the jurisdictions in which the related Mortgaged
Properties are located and will give due consideration to the Noteholders'
reliance on the Servicer.

      Accrual Period: With respect to the Notes, the period commencing on and
including the preceding Payment Date (or, in the case of the first Payment Date,
the period commencing on and including the first Transfer Date (which first
Transfer Date is the first date on which the Note Principal Balance is greater
than zero)) and ending on the day preceding the related Payment Date.

      Act or Securities Act: The Securities Act of 1933, as amended.

      Additional LIBOR Margin: As defined in the Note Purchase Agreement.

      Additional Note Principal Balance: With respect to each Transfer Date, the
aggregate Sales Prices of all Loans conveyed on such date.

                                        1
<PAGE>

      Adjustment Date: With respect to each ARM, the date set forth in the
related Promissory Note on which the Loan Interest Rate on such ARM is adjusted
in accordance with the terms of the related Promissory Note.

      Administration Agreement: The Administration Agreement, dated as of August
8, 2003, among the Issuer and the Administrator.

      Administrator: Option One Mortgage Corporation, in its capacity as
Administrator under the Administration Agreement.

      Advance Account: The account established and maintained pursuant to
Section 5.04.

      Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

      Agreement: This Agreement, as the same may be amended and supplemented
from time to time.

      ALTA: The American Land Title Association and its successors in interest.

      Appraised Value: With respect to any Loan, and the related Mortgaged
Property, the lesser of:

                  (i) the lesser of (a) the value thereof as determined by an
appraisal made for the originator of the Loan at the time of origination of the
Loan by an appraiser who met the minimum requirements of Fannie Mae or Freddie
Mac, and (b) the value thereof as determined by a review appraisal conducted by
the Loan Originator in the event any such review appraisal determines an
appraised value more than 10% lower than the value thereof, in the case of a
Loan with a Loan-to-Value Ratio less than or equal to 80%, or more than 5% lower
than the value thereof, in the case of a Loan with a Loan-to-Value Ratio greater
than 80%, as determined by the appraisal referred to in clause (i)(a) above; and

                  (ii) the purchase price paid for the related Mortgaged
Property by the Borrower with the proceeds of the Loan; provided, however, that
in the case of a refinanced Loan (which is a Loan the proceeds of which were not
used to purchase the related Mortgaged Property) or a Loan originated in
connection with a "lease option purchase" if the "lease option purchase price"
was set 12 months or more prior to origination, such value of the Mortgaged
Property is based solely upon clause (i) above.

      ARM: Any Loan, the Loan Interest Rate with respect to which is subject to
adjustment during the life of such Loan.

      Assignment: An LPA Assignment or S&SA Assignment.

                                        2
<PAGE>

      Assignment of Mortgage: With respect to any Loan, an assignment of the
related Mortgage in blank or to Wells Fargo Bank Minnesota, National
Association, as custodian or trustee under the applicable custodial agreement or
trust agreement, and notice of transfer or equivalent instrument in recordable
form, sufficient under the laws of the jurisdiction wherein the related
Mortgaged Property is located to reflect the assignment and pledge of such
Mortgage.

      Balloon Loan: Any Loan for which the related monthly payments, other than
the monthly payment due on the maturity date stated in the Promissory Note, are
computed on the basis of a period to full amortization ending on a date that is
later than such maturity date.

      Basic Documents: This Agreement, the Administration Agreement, the
Custodial Agreement, the Indenture, the Loan Purchase and Contribution
Agreement, the Master Disposition Confirmation Agreement, the Fee letter, the
Note Purchase Agreement, the Guaranty, the Trust Agreement, each Hedging
Instrument and, as and when required to be executed and delivered, the
Assignments.

      Blocked Account Agreements: Those Blocked Account Agreements, each dated
as of August 8, 2003, by and among the Trust, Option One, the Indenture Trustee
and Mellon Bank, N. A. and relating to the Trust Accounts, each as in effect
from time to time, and any substitutes or replacements therefor.

      Borrower: The obligor or obligors on a Promissory Note.

      Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a day
on which banking institutions in New York City, California, Illinois, Maryland,
Minnesota, Pennsylvania, Delaware or in the city in which the corporate trust
office of the Indenture Trustee is located or the city in which the Servicer's
servicing operations are located are authorized or obligated by law or executive
order to be closed.

      Certificateholder: A holder of a Trust Certificate.

      Change of Control: As defined in the Indenture.

      Clean-up Call Date: The first Payment Date occurring after the end of the
Revolving Period and the date on which the Note Principal Balance declines to
10% or less of the aggregate Note Principal Balance as of the end of the
Revolving Period.

      Closing Date: August 8, 2003.

      Code: The Internal Revenue Code of 1986, as amended from time to time, and
the regulations promulgated by the United States Treasury thereunder.

      Collateral Percentage: With respect to each Loan and any Business Day, a
percentage determined as follows:

            (a) with respect to all Loans other than Scratch & Dent Loans, 98%
or, upon the occurrence of a Performance Trigger, 95%; and

                                        3
<PAGE>

            (b) with respect to all Scratch & Dent Loans, 90%.

      Collateral Value: With respect to each Loan and each Business Day, an
amount equal to the positive difference, if any, between (a) the lesser of (1)
the Collateral Percentage of the Market Value of such Loan, and (2)(A) 100% of
the Principal Balance of each Loan that is not a Scratch & Dent Loan and (B) 75%
of the Principal Balance of each Scratch & Dent Loan, each as of such Business
Day, less (b) the aggregate unreimbursed Servicing Advances attributable to such
Loan as of the most recent Determination Date; provided, however, that the
Collateral Value shall be zero with respect to each Loan (1) that the Loan
Originator is required to repurchase pursuant to Section 2.05 or Section 3.06
hereof or (2) which is a Loan of the type specified in subparagraphs (i)-(xi)
hereof and which is in excess of the limits permitted under subparagraphs
(i)-(xi) hereof, or (3) which remains pledged to the Indenture Trustee later
than 120 days after its related Transfer Date, or (4) which has been released
from the possession of the Custodian to the Servicer or the Loan Originator for
a period in excess of 14 days, or (5) that is a Loan which is 90 or more days
Delinquent or a Foreclosed Loan, or (6) that is a Loan which has a Loan-to-Value
Ratio greater than 95%, or (7) that is not a Wet Funded Loan and for which the
Custodian is not in possession of a complete Custodial Loan File, or (8) that is
a Wet Funded Loan for which the related Custodial Loan File has not been
delivered to the Custodian on or before the later of the 15th Business Day and
the 20th calendar day following the related Transfer Date of such Wet Funded
Loan, (9) that breaches any representation or warranty set forth in Exhibit E
with respect to such Loan, (10) which is not denominated and payable only in
United States dollars in the United States, (11) under which the Borrower is not
a resident of the United States or is a government or a governmental subdivision
or agency, (12) which by its terms is not due and payable on or within 360
months of the original funding date thereof or which has had its payment terms
extended, (13) which has had any of its terms, conditions or provisions modified
or waived other than in compliance with Loan Originator's Underwriting
Guidelines, or (14) which would be deemed part of a "predatory lending" bucket
as defined within the state of the United States in which the related Mortgaged
Property is located; provided, further, that (A):

                  (i) the aggregate Collateral Value of Loans which are Second
Lien Loans may not exceed 10% of the aggregate Principal Balance of all Loans
that are not Scratch & Dent Loans;

                  (ii) the aggregate Collateral Value of Loans which are 60 to
89 days Delinquent as of the related Determination Date may not exceed 2% of the
aggregate Principal Balance of all Loans that are not Scratch & Dent Loans;

                  (iii) the aggregate Collateral Value of Loans with respect to
which the related Borrower's Credit Score is below 525 may not exceed 15% of the
aggregate Principal Balance of all Loans;

                  (iv) the aggregate Collateral Value of Loans which have a
Loan-to-Value Ratio or CLTV, as applicable, greater than 90% must be less than
10% of the aggregate Principal Balance of all Loans;

                                        4
<PAGE>

                  (v) the aggregate Collateral Value of Loans which have a
Loan-to-Value Ratio or CLTV, as applicable, greater than 85% must be less than
25% of the aggregate Principal Balance of all Loans;

                  (vi) the aggregate Collateral Value of Loans which have a
Loan-to-Value Ratio or CLTV, as applicable, greater than 80% must be less than
30% of the aggregate Principal Balance of all Loans;

                  (vii) the aggregate Collateral Value of Loans that are Scratch
& Dent Loans may not exceed $50,000,000; provided that the foregoing limit shall
be reduced by the aggregate principal balance of Scratch & Dent Loans subject to
any other secured loan, repurchase or credit facility entered into by the Loan
Originator and the Note Agent or any Affiliate thereof;

                  (viii) the aggregate Collateral Value of "prime" or
"A-quality" Loans originated by H&R Block Mortgage Corp. may not exceed
$50,000,000; provided that the foregoing limit shall be reduced by the aggregate
principal balance of "prime" or "A-quality" Loans subject to any other secured
loan, repurchase or credit facility entered into by the Loan Originator and the
Note Agent or any Affiliate thereof;

                  (ix) the aggregate Collateral Value of Loans that are Wet
Funded Loans may not exceed the greater of (A) $100,000,000.00 and (B) 25% of
the aggregate Principal Balance of all Loans; provided, however, that the
foregoing amount in clause (B) shall not exceed $300,000,000.00; provided,
further, that each of the foregoing limits shall be reduced by the aggregate
principal balance of Wet Funded Loans subject to any other note purchase,
secured loan, repurchase or credit facility entered into by the Loan Originator
and the Note Agent or any Affiliate thereof;

                  (x) the aggregate Collateral Value of Loans originated by the
Loan Originator more than 90 days prior to such Loans' related Transfer Date may
not exceed the lesser of $50,000,000.00 or 15% of the aggregate Principal
Balance of all Loans, or such greater amount as the Market Value Agent may
determine from time to time, in its sole discretion; provided, further, that
each of the foregoing limits shall be reduced by the aggregate principal balance
of Loans originated by the Loan Originator more than 90 days prior to such
Loans' related Transfer Date and subject to any other secured loan, repurchase
or credit facility entered into by the Loan Originator and the Note Agent or any
Affiliate thereof; and

                  (xi) the aggregate Collateral Value of Loans with Lost Note
Affidavits may not exceed the lesser of $5,000,000.00 or 5% of the aggregate
Principal Balance of all Loans; provided, further, that each of the foregoing
limits shall be reduced by the aggregate principal balance of Loans with Lost
Note Affidavits subject to any other secured loan, repurchase or credit facility
entered into by the Loan Originator and the Note Agent or any Affiliate thereof;
and

                  (xii) each Loan shall be counted in each applicable category
in (A) above and may be counted in 2 or more categories in (A) above at the same
time; provided that

                                        5
<PAGE>

once the Collateral Value of any Loan equals zero, it shall not be counted in
any category listed in (A) above.

      Collection Account: The account designated as such, established and
maintained by the Servicer in accordance with Section 5.01 (a) (1) hereof.

      Combined LTV or CLTV: With respect to any Second Lien Loan, the ratio of
the outstanding Principal Balance on the related date of origination of (a) (i)
such Loan plus (ii) the loan constituting the first lien to the lesser of (b)
(x) the Appraised Value of the Mortgaged Property at origination or (y) if the
Mortgaged Property was purchased within 12 months of the origination of the
Loan, the purchase price of the Mortgaged Property, expressed as a percentage.

      Commission: The Securities and Exchange Commission.

      Convertible Loan: A Loan that by its terms and subject to certain
conditions contained in the related Mortgage or Promissory Note allows the
Borrower to convert the adjustable Loan Interest Rate on such Loan to a fixed
Loan Interest Rate.

      Credit Score: With respect to each Borrower, the credit score for such
Borrower from a nationally recognized credit repository; provided, however, in
the event that a credit score for such Borrower was obtained from two
repositories, the "Credit Score" shall be the lower of the two scores; provided,
further, in the event that a credit score for such Borrower was obtained from
three repositories, the "Credit Score" shall be the middle score of the three
scores.

      Custodial Agreement: The custodial agreement dated as of August 8, 2003,
among the Issuer, the Servicer, the Indenture Trustee and the Custodian,
providing for the retention of the Custodial Loan Files by the Custodian on
behalf of the Indenture Trustee.

      Custodial Loan File: As defined in the Custodial Agreement.

      Custodian: The custodian named in the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Loan Originator, the Depositor or
any Subservicer. Wells Fargo Bank Minnesota, National Association, a national
banking association, shall be the initial Custodian pursuant to the terms of the
Custodial Agreement.

      Custodian Fee: For any Payment Date, the fee payable to the Custodian on
such Payment Date as set forth in the Custodian Fee Notice for such Payment
Date, which fee shall be calculated in accordance with the separate fee letter
between the Custodian and the Servicer.

      Custodian Fee Notice: For any Payment Date, the written notice provided by
the Custodian to the Servicer and the Indenture Trustee pursuant to Section
6.01, which notice shall specify the amount of the Custodian Fee payable on such
Payment Date.

      Daily Interest Accrual Amount: With respect to each day and the related
Accrual Period, interest accrued at the Note Interest Rate with respect to such
Accrual Period on the Note Principal Balance as of the preceding Business Day
after giving effect to all changes to the Note Principal Balance on or prior to
such preceding Business Day.

                                        6
<PAGE>

      Deemed Cured: With respect to the occurrence of a Performance Trigger or
Rapid Amortization Trigger, when the condition that originally gave rise to the
occurrence of such trigger has not continued for 20 consecutive days, or if the
occurrence of such Performance Trigger or Rapid Amortization Trigger has been
waived in writing by the Majority Noteholder.

      Default: Any occurrence that is, or with notice or the lapse of time or
both would become, an Event of Default.

      Defaulted Loan: With respect to any Determination Date, any Loan,
including, without limitation, any Liquidated Loan with respect to which (i) any
Monthly Payment due thereon remains unpaid for more than 120 days past the
original due date therefor, or (ii) any of the following has occurred as of the
end of the related Remittance Period: (a) foreclosure or similar proceedings
have been commenced; or (b) the Servicer or any Subservicer has determined in
good faith and in accordance with the servicing standard set forth in Section
4.01 of the Servicing Addendum that such Loan is in default or imminent default.

      Deleted Loan: A Loan replaced or to be replaced by one or more Qualified
Substitute Loans.

      Delinquent: A Loan is "Delinquent" if any Monthly Payment due thereon is
not made by the close of business on the day such Monthly Payment is required to
be paid. A Loan is "30 days Delinquent" if any Monthly Payment due thereon has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such Monthly Payment was required to
be paid or, if there is no such corresponding day (e.g., as when a 30-day month
follows a 31-day month in which a payment was required to be paid on the 31st
day of such month), then on the last day of such immediately succeeding month.
The determination of whether a Loan is "60 days Delinquent," "90 days
Delinquent", etc., shall be made in like manner.

      Delivery: When used with respect to Trust Account Property means:

            (a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9-102(a)(47) of the UCC and are
susceptible of physical delivery (except with respect to Trust Account Property
consisting of certificated securities (as defined in Section 8-102(a)(4) of the
UCC)), physical delivery to the Indenture Trustee or its custodian (or the
related Securities Intermediary) endorsed to the Indenture Trustee or its
custodian (or the related Securities Intermediary) or endorsed in blank (and if
delivered and endorsed to the Securities Intermediary, by continuous credit
thereof by book-entry to the related Trust Account);

            (b) with respect to a certificated security (i) delivery of such
certificated security endorsed to, or registered in the name of, the Indenture
Trustee or endorsed in blank to its custodian or the related Securities
Intermediary and the making by such Securities Intermediary of appropriate
entries in its records identifying such certificated securities as credited to
the related Trust Account, or (ii) by delivery thereof to a "clearing
corporation" (as defined in Section 8-102(5) of the UCC) and the making by such
clearing corporation of appropriate entries in its records crediting the
securities account of the related Securities

                                       7
<PAGE>

Intermediary by the amount of such certificated security and the making by such
Securities Intermediary of appropriate entries in its records identifying such
certificated securities as credited to the related Trust Account (all of the
Trust Account Property described in Subsections (a) and (b), "Physical
Property");

            and, in any event, any such Physical Property in registered form
shall be in the name of the Indenture Trustee or its nominee or custodian (or
the related Securities Intermediary); and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Indenture Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof;

            (c) with respect to any security issued by the U.S. Treasury, Fannie
Mae or Freddie Mac that is a book-entry security held through the Federal
Reserve System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable federal
regulations and Articles 8 and 9 of the UCC: the making by a Federal Reserve
Bank of an appropriate entry crediting such Trust Account Property to an account
of the related Securities Intermediary or the securities intermediary that is
(x) also a "participant" pursuant to applicable federal regulations and (y) is
acting as securities intermediary on behalf of the Securities Intermediary with
respect to such Trust Account Property; the making by such Securities
Intermediary or securities intermediary of appropriate entries in its records
crediting such book-entry security held through the Federal Reserve System
pursuant to federal book-entry regulations and Articles 8 and 9 of the UCC to
the related Trust Account; and such additional or alternative procedures as may
hereafter become appropriate to effect complete transfer of ownership of any
such Trust Account Property to the Indenture Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and

            (d) with respect to any item of Trust Account Property that is an
uncertificated security (as defined in Section 8-102(a)(18) of the UCC) and that
is not governed by clause (c) above, registration in the records of the issuer
thereof in the name of the related Securities Intermediary, and the making by
such Securities Intermediary of appropriate entries in its records crediting
such uncertificated security to the related Trust Account.

      Designated Depository Institution: With respect to an Eligible Account, an
institution whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC, the long-term deposits of which shall be
rated A or better by S&P or A2 or better by Moody's and the short-term deposits
of which shall be rated P-1 or better by Moody's and A-1 or better by S&P,
unless otherwise approved in writing by the Note Agent and which is any of the
following: (A) a federal savings and loan association duly organized, validly
existing and in good standing under the federal banking laws, (B) an institution
duly organized, validly existing and in good standing under the applicable
banking laws of any state, (C) a national banking association duly organized,
validly existing and in good standing under the federal banking laws, (D) a
principal subsidiary of a bank holding company or (E) approved in writing by the
Note Agent and, in each case acting or designated by the Servicer as the
depository institution for the Eligible Account; provided, however, that any
such institution or association shall have combined capital, surplus and
undivided profits of at least $50,000,000.

                                       8
<PAGE>

      Depositor: Option One Loan Warehouse Corporation, a Delaware corporation,
and any successors thereto.

      Determination Date: With respect to any Payment Date occurring on the 10th
day of a month, the last calendar day of the month immediately preceding the
month of such Payment Date, and with respect to any other Payment Date, as
mutually agreed by the Servicer and the Noteholders.

      Disposition: A Securitization, Whole Loan Sale transaction, or other
disposition of Loans.

      Disposition Agent: Bank One, NA (Main Office Chicago) and its successors
and assigns acting at the direction, and as agent, of the Majority Noteholders.

      Disposition Participant: As applicable, with respect to a Disposition, any
"depositor" with respect to such Disposition, the Disposition Agent, the
Majority Noteholders, the Issuer, the Servicer, the related trustee and the
related custodian, any nationally recognized credit rating agency, the related
underwriters, the related placement agent, the related credit enhancer, the
related whole-loan purchaser, the related purchaser of securities and/or any
other party necessary or, in the good faith belief of any of the foregoing,
desirable to effect a Disposition.

      Disposition Proceeds: With respect to a Disposition, (x) the proceeds of
the Disposition remitted to the Trust in respect of the Loans transferred on the
date of and with respect to such Disposition, including without limitation, any
cash and Retained Securities created in any related Securitization less all
costs, fees and expenses incurred in connection with such Disposition,
including, without limitation, all amounts deposited into any reserve accounts
upon the closing thereof plus or minus (y) the net positive or net negative
value of all Hedging Instruments terminated in connection with such Disposition
minus (z) all other amounts agreed upon in writing by the Note Agent, the Trust
and the Servicer.

      Distribution Account: The account established and maintained pursuant to
Section 5.01(a)(2) hereof.

      Due Date: The day of the month on which the Monthly Payment is due from
the Borrower with respect to a Loan.

      Due Diligence Fees: Shall have the meaning provided in Section 11.15
hereof.

      Eligible Account: At any time, a deposit account which is: (i) maintained
with a Designated Depository Institution; (ii) fully insured by either the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC; (iii) a
trust account (which shall be a "segregated trust account") maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Indenture Trustee and the Issuer, which
depository institution or trust company shall have capital and surplus of not
less than $50,000,000; or (iv) with the prior written consent of the Majority
Noteholders, any other account.

                                       9
<PAGE>

      Eligible Servicer: (x) Option One or (y) any other Person that (i) has
been designated as an approved seller-servicer by Fannie Mae or Freddie Mac for
first and second mortgage loans, (ii) has equity of not less than $15,000,000,
as determined in accordance with GAAP and (iii) any other Person to which the
Majority Noteholders may consent in writing.

      Escrow Payments: With respect to any Loan, the amounts constituting ground
rents, taxes, assessments, water rates, sewer rents, municipal charges, fire,
hazard, liability and other insurance premiums, condominium charges, and any
other payments required to be escrowed by the related Borrower with the lender
or servicer pursuant to the Mortgage or any other document.

      Event of Default: Either a Servicer Event of Default or an Event of
Default under the Indenture.

      Exceptions Report: The meaning set forth in the Custodial Agreement.

      Exchange Act: The Securities Exchange Act of 1934, as amended.

      Fannie Mae: The Federal National Mortgage Association and any successor
thereto.

      FDIC: The Federal Deposit Insurance Corporation and any successor thereto.

      Fee Letter: The Fee Letter, dated August 8, 2003, by and among the Trust,
 Option One and the Note Agent, as the same is in effect from time to time.

      Fidelity Bond: As described in Section 4.10 of the Servicing Addendum.

      Final Put Date: The Put Date following the end of the Revolving Period on
which the Majority Noteholders exercise the Put Option with respect to the
entire outstanding Note Principal Balance.

      Final Recovery Determination: With respect to any defaulted Loan or any
Foreclosure Property, a determination made by the Servicer that all Mortgage
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

      First Lien Loan: A Loan secured by the lien on the related Mortgaged
Property, subject to no prior liens on such Mortgaged Property.

      Foreclosed Loan: As of any Determination Date, any Loan that as of the end
of the preceding Remittance Period has been discharged as a result of (i) the
completion of foreclosure or comparable proceedings by the Servicer on behalf of
the Issuer; (ii) the acceptance of the deed or other evidence of title to the
related Mortgaged Property in lieu of foreclosure or other comparable
proceeding; or (iii) the acquisition of title to the related Mortgaged Property
by operation of law.

                                       10
<PAGE>

      Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer on behalf of the Issuer through foreclosure,
deed in lieu of foreclosure or similar proceedings in respect of the related
Loan.

      Freddie Mac: The Federal Home Loan Mortgage Corporation and any successor
thereto.

      GAAP: Generally Accepted Accounting Principles as in effect in the United
States.

      Gross Margin: With respect to each ARM, the fixed percentage amount set
forth in the related Promissory Note.

      Guaranty: The Guaranty made by H&R Block, Inc. in favor of the Indenture
Trustee and the Noteholders.

      Hedge Funding Requirement: With respect to any day, all amounts required
to be paid or delivered by the Issuer under any Hedging Instrument, whether in
respect of payments thereunder or in order to meet margin, collateral or other
requirements thereof. Such amounts shall be calculated by the Market Value Agent
and the Indenture Trustee shall be notified of such amount by the Market Value
Agent.

      Hedge Value: With respect to any Business Day and a specific Hedging
Instrument, the positive amount, if any, that is equal to the amount that would
be paid to the Issuer in consideration of an agreement between the Issuer and an
unaffiliated third party, that would have the effect of preserving for the
Issuer the net economic equivalent, as of such Business Day, of all payment and
delivery requirements payable to and by the Issuer under such Hedging Instrument
until the termination thereof, as determined by the Market Value Agent in
accordance with Section 6.03 hereof.

      Hedging Counterparty: A Person (i) (A) the long-term and commercial paper
or short-term deposit ratings of which are acceptable to the Majority
Noteholders and (B) which shall agree in writing that, in the event that any of
its long-term or commercial paper or short-term deposit ratings cease to be at
or above the levels deemed acceptable by the Majority Noteholders, it shall
secure its obligations in accordance with the request of the Majority
Noteholders, (ii) that has entered into a Hedging Instrument and (iii) that is
acceptable to the Majority Noteholders.

      Hedging Instrument: Any interest rate cap agreement, interest rate floor
agreement, interest rate swap agreement or other interest rate hedging agreement
entered into by the Issuer with a Hedging Counterparty, and which requires the
Hedging Counterparty to deposit all amounts payable thereby directly to the
Collection Account. Each Hedging Instrument shall meet the requirements set
forth in Article VII hereof with respect thereto.

      Indenture: The Indenture dated as of August 8, 2003, between the Issuer
and the Indenture Trustee and any amendments thereto.

      Indenture Trustee: Wells Fargo Bank Minnesota, National Association, a
national banking association, as Indenture Trustee under the Indenture, or any
successor indenture trustee under the Indenture.

                                       11
<PAGE>

      Indenture Trustee Fee: An annual fee of $5,000 payable by the Servicer in
accordance with a separate fee agreement between the Indenture Trustee and the
Servicer and Section 5.01 hereof.

      Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Loan Originator, the Servicer, the Depositor
or any of their respective Affiliates, (ii) does not have any direct financial
interest in, or any material indirect financial interest in, the Loan
Originator, the Servicer, the Depositor or any of their respective Affiliates
and (iii) is not connected with the Loan Originator, the Depositor, the Servicer
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates
merely because such Person is the beneficial owner of 1% or less of any class of
securities issued by the Loan Originator, the Depositor, the Servicer or any of
their respective Affiliates, as the case may be.

      Independent Accountants: A firm of nationally recognized certified public
accountants which is independent according to the provisions of SEC Regulation
S-X, Article 2.

      Index: With respect to each ARM, the index set forth in the related
Promissory Note for the purpose of calculating the Loan Interest Rate thereon.

      Interest Carry-Forward Amount: With respect to any Payment Date, the
excess, if any, of (A) the Interest Payment Amount for such Payment Date plus
the Interest Carry-Forward Amount for the prior Payment Date over (B) the amount
in respect of interest that is actually paid from the Distribution Account on
such Payment Date in respect of the interest for such Payment Date.

      Interest Payment Amount: With respect to any Payment Date, the sum of the
Daily Interest Accrual Amounts for all days in the related Accrual Period.

      LIBO Rate. As defined in the Note Purchase Agreement.

      LIBOR Business Day: As defined in the Note Purchase Agreement.

      LIBOR Determination Date: As defined in the Note Purchase Agreement.

      LIBOR Margin: As defined in the Note Purchase Agreement.

      Lien: With respect to any asset, (a) any mortgage, lien, pledge, charge,
security interest, hypothecation, option or encumbrance of any kind in respect
of such asset or (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.

      Lifetime Cap: The provision in the Promissory Note for each ARM which
limits the maximum Loan Interest Rate over the life of such ARM.

                                       12
<PAGE>

      Lifetime Floor: The provision in the Promissory Note for each ARM which
limits the minimum Loan Interest Rate over the life of such ARM.

      Liquidated Loan: As defined in Section 4.03(c) of the Servicing Addendum.

      Liquidated Loan Losses: With respect to any Determination Date, the
difference between (i) the aggregate Principal Balances as of such date of all
Loans that became Liquidated Loans and (ii) all Liquidation Proceeds received on
or prior to such date.

      Liquidation Proceeds: With respect to a Liquidated Loan, any cash amounts
received in connection with the liquidation of such Liquidated Loan, whether
through trustee's sale, foreclosure sale or other disposition, any cash amounts
received in connection with the management of the Mortgaged Property from
Defaulted Loans, any proceeds from Primary Insurance Policies and any other
amounts required to be deposited in the Collection Account pursuant to Section
5.01(b) hereof, in each case including Mortgage Insurance Proceeds and Released
Mortgaged Property Proceeds.

      Loan: Any loan sold to the Trust hereunder and pledged to the Indenture
Trustee, which loan includes, without limitation, (i) a Promissory Note or Lost
Note Affidavit and related Mortgage and (ii) all right, title and interest of
the Loan Originator in and to the Mortgaged Property covered by such Mortgage.
The term Loan shall be deemed to include the related Promissory Note or Lost
Note Affidavit, related Mortgage and related Foreclosure Property, if any.

      Loan Documents: With respect to a Loan, the documents comprising the
Custodial Loan File for such Loan.

      Loan File: With respect to each Loan, the Custodial Loan File and the
Servicer's Loan File.

      Loan Interest Rate: With respect to each Loan, the annual rate of interest
borne by the related Promissory Note, as shown on the Loan Schedule, and, in the
case of an ARM, as the same may be periodically adjusted in accordance with the
terms of such Loan.

      Loan Originator: Option One and its permitted successors and assigns.

      Loan Pool: As of any date of determination, the pool of all Loans conveyed
to the Issuer pursuant to this Agreement on all Transfer Dates up to and
including such date of determination, which Loans have not been released from
the Lien of the Indenture pursuant to the terms of the Basic Documents, together
with the rights and obligations of a holder thereof, and the payments thereon
and proceeds therefrom received on and after the applicable Transfer Cut-off
Date, as identified from time to time on the Loan Schedule.

      Loan Purchase and Contribution Agreement: The First Amended and Restated
Loan Purchase and Contribution Agreement, between Option One, as seller and the
Depositor, as purchaser, dated as of August 8, 2003 and all supplements and
amendments thereto.

                                       13
<PAGE>

      Loan Schedule: The schedule of Loans conveyed to the Issuer on the Closing
Date and on each Transfer Date and delivered to the Note Agent and the Custodian
in the form of a computer-readable transmission specifying the information set
forth on Exhibit D hereto and, with respect to Wet Funded Loans, Exhibit C to
the Custodial Agreement.

      Loan-to-Value Ratio or LTV: With respect to any First Lien Loan, the ratio
of the original outstanding principal amount of such Loan to the Appraised Value
of the Mortgaged Property at origination.

      Lock-Box Clearing Custodial Account: The bank account maintained at Mellon
Bank, N.A. into which Option One initially deposits (or causes to be deposited)
all Monthly Payments it receives as well as any replacement or substitute
account therefore.

      Lost Note Affidavit: With respect to any Loan as to which the original
Promissory Note has been permanently lost or destroyed and has not been
replaced, an affidavit from the Loan Originator certifying that the original
Promissory Note has been lost, misplaced or destroyed (together with a copy of
the related Promissory Note and indemnifying the Issuer against any loss, cost
or liability resulting from the failure to deliver the original Promissory Note)
in the form of Exhibit L attached to the Custodial Agreement.

      LPA Assignment: The Assignment of Loans from Option One to the Depositor
under the Loan Purchase and Contribution Agreement.

      Majority Certificateholders: Has the meaning set forth in the Trust
Agreement.

      Majority Noteholders: The Note Agent. In the event of the release of the
Lien of the Indenture in accordance with the terms thereof, the Majority
Noteholders shall mean the Majority Certificateholders.

      Market Value: The market value of a Loan as of any Business Day as
determined by the Market Value Agent in accordance with Section 6.03 hereof.

      Market Value Agent: Bank One, NA or an Affiliate thereof designated by
Bank One, NA in writing to the parties hereto and, in either case, its
successors in interest.

      Master Disposition Confirmation Agreement: The Second Amended and Restated
Master Disposition Confirmation Agreement, dated as of August 8, 2003, by and
among Option One, the Depositor, Option One Owner Trust 2001-1A, Option One
Owner Trust 2001-1B, Option One Owner Trust 2001-2, Option One Owner Trust
2002-3, Option One Owner Trust 2003-4, Wells Fargo Bank Minnesota, National
Association, Bank of America, N.A., Greenwich Capital Financial Products, Inc.,
UBS Warburg Real Estate Securities, Inc., Steamboat Funding Corporation and the
Note Agent, as the same may be amended or restated from time to time.

      Maturity Date: With respect to the Notes, as set forth in the Indenture or
such later date as may be agreed in writing by the Majority Noteholders.

      Maximum Note Principal Balance: As defined in Section 1.01 of the Note
Purchase Agreement.

                                       14
<PAGE>

      Monthly Advance: The aggregate of the advances made by the Servicer on any
Remittance Date pursuant to Section 4.14 of the Servicing Addendum.

      Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Borrower on the related Loan, as set forth in
the related Promissory Note.

      Monthly Remittance Amount: With respect to each Remittance Date, the sum,
without duplication, of (i) the aggregate payments on the Loans collected by the
Servicer pursuant to Section 5.01(b)(i) during the immediately preceding
Remittance Period and (ii) the aggregate of amounts deposited into the
Collection Account pursuant to Section 5.01(b)(ii) through 5.01(b)(ix) during
the immediately preceding Remittance Period.

      Moody's: Moody's Investors Service, Inc., or any successor thereto.

      Mortgage: With respect to any Loan, the mortgage, deed of trust or other
instrument securing the related Promissory Note, which creates a first or second
lien on the fee in real property and/or a first or second lien on the leasehold
in real property securing the Promissory Note and the assignment of rents and
leases related thereto.

      Mortgage Insurance Policies: With respect to any Mortgaged Property or
Loan, the insurance policies required pursuant to Section 4.08 of the Servicing
Addendum.

      Mortgage Insurance Proceeds: With respect to any Mortgaged Property, all
amounts collected in respect of Mortgage Insurance Policies and not required
either pursuant to applicable law or the related Loan Documents to be applied to
the restoration of the related Mortgage Property or paid to the related
Borrower.

      Mortgaged Property: With respect to a Loan, the related Borrower's fee
and/or leasehold interest in the real property (and/or all improvements,
buildings, fixtures, building equipment and personal property thereon (to the
extent applicable) and all additions, alterations and replacements made at any
time with respect to the foregoing) and all other collateral securing repayment
of the debt evidenced by the related Promissory Note.

      Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the prior Remittance Period, net of any reimbursements
to the Servicer made from such amounts for any unreimbursed Servicing
Compensation and Servicing Advances (including Nonrecoverable Servicing
Advances) made and any other fees and expenses paid in connection with the
foreclosure, inspection, conservation and liquidation of the related Liquidated
Loans or Foreclosure Properties pursuant to Section 4.03 of the Servicing
Addendum.

      Net Loan Losses: With respect to any Defaulted Loan that is subject to a
modification pursuant to Section 4.01 of the Servicing Addendum, an amount equal
to the portion of the Principal Balance, if any, forgiven or deferred in
connection with such modification.

      Net Worth: With respect to any Person, the excess of total assets of such
Person, over total liabilities of such Person, determined in accordance with
GAAP.

                                       15
<PAGE>

      Nonrecoverable Monthly Advance: Any Monthly Advance previously made or
proposed to be made with respect to a Loan or Foreclosure Property that, in the
good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Note Agent, will not, or, in
the case of a proposed Monthly Advance, would not be, ultimately recoverable
from the related late payments, Mortgage Insurance Proceeds, Liquidation
Proceeds or condemnation proceeds on such Loan or Foreclosure Property as
provided herein.

      Nonrecoverable Servicing Advance: With respect to any Loan or any
Foreclosure Property, (a) any Servicing Advance previously made and not
reimbursed from late collections, condemnation proceeds, Liquidation Proceeds,
Mortgage Insurance Proceeds or the Released Mortgaged Property Proceeds on the
related Loan or Foreclosure Property or (b) a Servicing Advance proposed to be
made in respect of a Loan or Foreclosure Property either of which, in the good
faith business judgment of the Servicer, as evidenced by an Officer's
Certificate of a Servicing Officer delivered to the Note Agent, would not be
ultimately recoverable.

      Nonutilization Fee: A fee payable by the Issuer to the Note Agent on each
Payment Date in an amount equal to (a) 0.175% times (b) the average daily amount
for the immediately preceding month of (1) $1,020,000,000 less (2) the Note
Principal Balance divided by (c) 360 and multiplied by (d) the actual number of
calendar days that have elapsed since the immediately preceding Payment Date
(or, with respect to the first Payment Date, the Closing Date).

      Note: The meaning assigned thereto in the Indenture.

      Note Agent: Bank One, NA (Main Office Chicago), acting in its capacity as
agent on behalf of the Purchasers under the Note Purchase Agreement.

      Noteholder: The meaning assigned thereto in the Indenture.

      Note Interest Rate: The meaning assigned thereto in the Note Purchase
Agreement.

      Note Principal Balance: With respect to the Notes, as of any date of
determination (a) the sum of the Additional Note Principal Balances purchased on
or prior to such date pursuant to the Note Purchase Agreement less (b) all
amounts previously distributed in respect of principal of the Notes on or prior
to such day.

      Note Purchase Agreement: The Note Purchase Agreement among the Note Agent,
the Issuer and the Depositor, dated as of August 8, 2003.

      Note Redemption Amount: As of any Determination Date, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of the Notes, plus the Interest Payment Amount for the related Payment Date,
(ii) any Trust Fees and Expenses due and unpaid on the related Payment Date,
(iii) any Servicing Advance Reimbursement Amount as of such Determination Date
and (iv) all amounts due to Hedging Counterparties in respect of the termination
of all related Hedging Instruments.

      Officer's Certificate: A certificate signed by a Responsible Officer of
the Depositor, the Loan Originator, the Servicer or the Issuer, in each case, as
required by this Agreement.

                                       16
<PAGE>

      Opinion of Counsel: A written opinion of counsel who may be employed by
the Servicer, the Depositor, the Loan Originator or any of their respective
Affiliates.

      Option One: Option One Mortgage Corporation, a California corporation.

      Overcollateralization Shortfall: With respect to any Business Day, an
amount equal to the positive difference, if any, between (a) the Note Principal
Balance on such Business Day and (b) the aggregate Collateral Value of all Loans
in the Loan Pool as of such Business Day; provided, however, that on (A) the
termination of the Revolving Period, (B) the occurrence of a Rapid Amortization
Trigger, (C) the Payment Date on which the Trust is to be terminated pursuant to
Section 10.02 hereof, or (D) the Final Put Date, the Overcollateralization
Shortfall shall be equal to the Note Principal Balance. Notwithstanding anything
to the contrary herein, in no event shall the Overcollateralization Shortfall,
with respect to any Business Day, exceed the Note Principal Balance as of such
date. If as of such Business Day, no Rapid Amortization Trigger or Default under
this Agreement or the Indenture shall be in effect, the Overcollateralization
Shortfall shall be reduced (but in no event to an amount below zero) by all or
any portion of the aggregate Hedge Value as of such Payment Date as the Majority
Noteholders may, in their sole discretion, designate in writing.

      Owner Trustee: means Wilmington Trust Company, a Delaware banking
corporation, not in its individual capacity but solely as Owner Trustee under
this Agreement, and any successor owner trustee under the Trust Agreement.

      Owner Trustee Fee: The annual fee of $4,000 payable in equal monthly
installments to the Servicer pursuant to Section 5.01(c)(3)(i) which shall in
turn pay such amount annually to the Owner Trustee on the anniversary of the
Closing Date occurring each year during the term of this Agreement.

      Paying Agent: The meaning assigned thereto in the Indenture.

      Payment Date: Each of, (i) the 10th day of each calendar month commencing
on the first such 10th day to occur after the first Transfer Date, or if any
such day is not a Business Day, the first Business Day immediately following
such day, (ii) any day a Loan is sold pursuant to the terms hereof, (iii) a Put
Date as specified by the Majority Noteholder pursuant to Section 10.05 of the
Indenture, and (iv) an additional Payment Date pursuant to Section 5.01(c)(4)(i)
and 5.01(c)(4)(iii). From time to time, the Majority Noteholders and the Issuer
may agree, upon written notice to the Owner Trustee and the Indenture Trustee,
to additional Payment Dates in accordance with Section 5.01(c)(4)(ii).

      Payment Statement: As defined in Section 6.01(b) hereof.

      Percentage Interest: As defined in the Trust Agreement.

      Performance Trigger: Shall exist, as of any Determination Date, if the
aggregate Principal Balance of all Loans that are not Scratch & Dent Loans and
that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 2%, provided, however,
that a Performance Trigger shall not occur if such percentage is reduced to

                                       17
<PAGE>

less than 2% within 5 Business Days of such Determination Date as the result of
the exercise of a Servicer Call. A Performance Trigger shall continue to exist
until Deemed Cured.

      Periodic Cap: With respect to each ARM Loan and any Rate Change Date
therefor, the annual percentage set forth in the related Promissory Note, which
is the maximum annual percentage by which the Loan Interest Rate for such Loan
may increase or decrease (subject to the Lifetime Cap or the Lifetime Floor) on
such Rate Change Date from the Loan Interest Rate in effect immediately prior to
such Rate Change Date.

      Permitted Investments: Each of the following:

            (a) Direct general obligations of the United States or the
obligations of any agency or instrumentality of the United States fully and
unconditionally guaranteed, the timely payment or the guarantee of which
constitutes a full faith and credit obligation of the United States.

            (b) Federal Housing Administration debentures rated Aa2 or higher by
Moody's and AA or better by S&P.

            (c) Freddie Mac senior debt obligations rated Aa2 or higher by
Moody's and AA or better by S&P.

            (d) Federal Home Loan Banks' consolidated senior debt obligations
rated Aa2 or higher by Moody's and AA or better by S&P.

            (e) Fannie Mae senior debt obligations rated Aa2 or higher by
Moody's.

            (f) Federal funds, certificates or deposit, time and demand
deposits, and bankers' acceptances (having original maturities of not more than
365 days) of any domestic bank, the short-term debt obligations of which have
been rated A-1 or better by S&P and P-1 or better by Moody's.

            (g) Investment agreements approved by the Note Agent provided:

                  (1) The agreement is with a bank or insurance company which
has an unsecured, uninsured and unguaranteed obligation (or claims-paying
ability) rated Aa2 or better by Moody's and AA or better by S&P, and

                  (2) Monies invested thereunder may be withdrawn without any
penalty, premium or charge upon not more than one day's notice (provided such
notice may be amended or canceled at any time prior to the withdrawal date), and

                  (3) The agreement is not subordinated to any other obligations
of such insurance company or bank, and

                  (4) The same guaranteed interest rate will be paid on any
future deposits made pursuant to such agreement, and

                                       18
<PAGE>

                  (5) The Indenture Trustee and the Note Agent receive an
opinion of counsel that such agreement is an enforceable obligation of such
insurance company or bank.

            (h) Commercial paper (having original maturities of not more than
365 days) rated A-1 or better by S&P and P-1 or better by Moody's.

            (i) Investments in money market funds rated AAAM or AAAM-G by S&P
and Aaa or P-1 by Moody's.

            (j) Investments approved in writing by the Note Agent;

provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity; and provided, further, that, with respect to any
instrument described above, such instrument qualifies as a "permitted
investment" within the meaning of Section 860G(a)(5) of the Code and the
regulations thereunder.

      Each reference in this definition to the Rating Agency shall be construed,
as a reference to each of S&P and Moody's.

      Person: Any individual, corporation, partnership, joint venture, limited
liability company, association, joint-stock company, trust, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.

      Physical Property: As defined in clause (b) of the definition of
"Delivery" above.

      Pool Principal Balance: With respect to any Determination Date, the
aggregate Principal Balances of the Loans as of such Determination Date.

      Prepaid Installment: With respect to any Loan, any installment of
principal thereof and interest thereon received prior to the scheduled Due Date
for such installment, intended by the Borrower as an early payment thereof and
not as a Prepayment with respect to such Loan.

      Prepayment: Any payment of principal of a Loan which is received by the
Servicer in advance of the scheduled due date for the payment of such principal
(other than the principal portion of any Prepaid Installment), and the proceeds
of any Mortgage Insurance Policy which are to be applied as a payment of
principal on the related Loan shall be deemed to be Prepayments for all purposes
of this Agreement.

      Preservation Expenses: Expenditures made by the Servicer in connection
with a foreclosed Loan prior to the liquidation thereof, including, without
limitation, expenditures for real estate property taxes, hazard insurance
premiums, property restoration or preservation.

                                       19
<PAGE>

      Primary Insurance Policy: A policy of primary mortgage guaranty insurance
issued by a Qualified Insurer pursuant to Section 4.06 of the Servicing
Addendum.

      Principal Balance: With respect to any Loan or related Foreclosure
Property, (i) at the Transfer Cut-off Date, the Transfer Cut-off Date Principal
Balance and (ii) with respect to any other date of determination, the
outstanding unpaid principal balance of the Loan as of the end of the preceding
Remittance Period (after giving effect to all payments received thereon and the
allocation of any Net Loan Losses with respect thereto for a Defaulted Loan
prior to the end of such Remittance Period); provided, however, that any
Liquidated Loan shall be deemed to have a Principal Balance of zero.

      Proceeding: Means any suit in equity, action at law or other judicial or
administrative proceeding.

      Promissory Note: With respect to a Loan, the original executed promissory
note or other evidence of the indebtedness of the related Borrower or Borrowers.

      Put/Call Loan: Any (i) non-Scratch & Dent Loan that has become 30 or more
days (but less than 60 days) Delinquent, (ii) non-Scratch & Dent Loan that has
become 60 or more days (but less than 90 days) Delinquent, (iii) non-Scratch &
Dent Loan that has become 90 or more days Delinquent, (iv) non-Scratch & Dent
Loan that is a Defaulted Loan, (v) non-Scratch & Dent Loan that has been in
default for a period of 30 days or more (other than a Loan referred to in clause
(i), (ii), (iii) or (iv) hereof), (vi) non-Scratch & Dent Loan that does not
meet criteria established by independent rating agencies or surety agency
conditions for Dispositions which criteria have been established at the related
Transfer Date and may be modified only to match changed criteria of independent
rating agencies or surety agents, or (vii) non-Scratch & Dent Loan that is
inconsistent with the intended tax status of a Securitization.

      Put Date: Any date on which all or a portion of the Notes are to be
purchased by the Issuer as a result of the exercise of the Put Option.

      Put Option: The right of the Majority Noteholders to require the Issuer to
repurchase all or a portion of the Notes in accordance with Section 10.04 of the
Indenture.

      QSPE Affiliate: Option One Owner Trust 2001-1A, Option One Owner Trust
2001-1B, Option One Owner Trust 2002-2, Option One Owner Trust 2002-3 or any
other Affiliate which is a "qualified special purpose entity" in accordance with
Financial Accounting Standards Board's Statement No. 140 or 125, as they may be
amended from time to time.

      Qualified Insurer: An insurance company duly qualified as such under the
laws of the states in which the Mortgaged Property is located, duly authorized
and licensed in such states to transact the applicable insurance business and to
write the insurance provided and that meets the requirements of Fannie Mae and
Freddie Mac.

      Qualified Substitute Loan: A Loan or Loans substituted for a Deleted Loan
pursuant to Section 3.06 hereof, which (i) has or have been approved in writing
by the Majority Noteholders and (ii) complies or comply as of the date of
substitution with each representation and warranty

                                       20
<PAGE>

set forth in Exhibit E and is or are not 30 or more days Delinquent as of the
date of substitution for such Deleted Loan or Loans.

      Rapid Amortization Trigger: Shall exist, as of any Determination Date, if
the aggregate Principal Balance of all Loans that are not Scratch & Dent Loans
and that are Delinquent greater than 59 days (including Defaulted Loans and
Foreclosed Loans) as of such Determination Date divided by the Pool Principal
Balance as of such Determination Date is greater than 3%; provided, however,
that a Rapid Amortization Trigger shall not occur if such percentage is reduced
to less than 3% within 5 Business Days of such Determination Date as a result of
the exercise of a Servicer Call.

      Rate Change Date: The date on which the Loan Interest Rate of each ARM is
subject to adjustment in accordance with the related Promissory Note.

      Rating Agencies: S&P and Moody's or such other nationally recognized
credit rating agencies as may from time to time be designated in writing by the
Majority Noteholders in their sole discretion.

      Record Date: With respect to each Payment Date, the close of business of
the immediately preceding Business Day.

      Reference Banks: Bankers Trust Company, Barclay's Bank PLC, The Tokyo
Mitsubishi Bank and National Westminster Bank PLC and their successors in
interest; provided, however, that if the Note Agent determines that any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Note Agent with the approval of the Issuer, which approval
shall not be unreasonably withheld, which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London and (ii) which have been designated as
such by the Note Agent with the approval of the Issuer, which approval shall not
be unreasonably withheld.

      Refinanced Loan: A Loan the proceeds of which were not used to purchase
the related Mortgaged Property.

      Released Mortgaged Property Proceeds: With respect to any Loan, proceeds
received by the Servicer in connection with (i) a taking of an entire Mortgaged
Property by exercise of the power of eminent domain or condemnation or (ii) any
release of part of the Mortgaged Property from the lien of the related Mortgage,
whether by partial condemnation, sale or otherwise; which proceeds in either
case are not released to the Borrower in accordance with applicable law and/or
Accepted Servicing Practices.

      Remittance Date: The Business Day immediately preceding each Payment Date.

      Remittance Period: With respect to any Payment Date, the period commencing
immediately following the Determination Date for the preceding Payment Date (or,
in the case of the initial Payment Date, commencing immediately following the
initial Transfer Cut-off Date) and ending on and including the related
Determination Date.

                                       21
<PAGE>

      Repurchase Price: With respect to a Loan the sum of (i), the Principal
Balance thereof as of the date of purchase or repurchase, plus (ii) all accrued
and unpaid interest on such Loan to the date of purchase or repurchase computed
at the applicable Loan Interest Rate, plus (iii) the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Loan (after
deducting therefrom any amounts received in respect of such purchased or
repurchased Loan and being held in the Collection Account for future
distribution to the extent such amounts represent recoveries of principal not
yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase). The
Repurchase Price shall be (i) increased by the net negative value or (ii)
decreased by the net positive value of all Hedging Instruments terminated with
respect to the purchase of such Loan. To the extent the Servicer does not
reimburse itself for amounts, if any, in respect of the Servicing Advance
Reimbursement Amount pursuant to Section 5.01(c)(1) hereof, with respect to such
Loan, the Repurchase Price shall be reduced by such amounts.

      Reserve Interest Rate: With respect to any LIBOR Determination Date, the
rate per annum that the Note Agent determines to be either (i) the arithmetic
mean (rounded to the nearest whole multiple of 1/16%) of the one-month U.S.
dollar lending rates which New York City banks selected by the Note Agent are
quoting on the relevant LIBOR Determination Date to the principal London offices
of leading banks in the London interbank market or (ii) in the event that the
Note Agent can determine no such arithmetic mean, the lowest one-month U.S.
dollar lending rate which New York City banks selected by the Note Agent are
quoting on such LIBOR Determination Date to leading European banks.

      Responsible Officer: When used with respect to the Indenture Trustee or
Custodian, any officer within the corporate trust office of such Person,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of such Person customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the date hereof (as such list
may be modified or supplemented from time to time thereafter) and, so long as
the Administration Agreement is in effect, any Vice President or more senior
officer of the Administrator who is authorized to act for the Administrator in
matters relating to the Issuer and to be acted upon by the Administrator
pursuant to the Administration Agreement and who is identified on the list of
Responsible Officers delivered by the Administrator to the Owner Trustee on the
date hereof (as such list may be modified or supplemented from time to time
thereafter). When used with respect to the Depositor, the Loan Originator or the
Servicer, the President, any Vice President, or the Treasurer.

      Retained Securities: With respect to a Securitization, any subordinated
securities issued or expected to be issued, or excess collateral value retained
or expected to be retained, in connection therewith to the extent the Depositor,
the Loan Originator or an Affiliate thereof retains, instead of sell, such
securities.

                                       22
<PAGE>

      Retained Securities Value: With respect to any Business Day and a Retained
Security, the market value thereof as determined by the Market Value Agent in
accordance with Section 6.03(d) hereof.

      Revolving Period: With respect to the Notes, the period commencing on the
Closing Date and ending on the earlier of (i) 364 days after such date, and (ii)
the date on which the Revolving Period is terminated pursuant to Section 2.07.
The Revolving Period may be extended annually, in the sole discretion of the
Note Agent, upon the request of the Depositor.

      Sales Price: For any Transfer Date, the sum of the Collateral Values with
respect to each Loan conveyed on such Transfer Date as of such Transfer Date.

      S&SA Assignment: An Assignment, in the form of Exhibit C hereto, of Loans
and other property from the Depositor to the Issuer pursuant to this Agreement.

      Scratch & Dent Loan: Any Loan that does not meet the Underwriting
Guidelines or with respect to which certain documentation is missing from the
Custodial Loan File.

      Second Lien Loan: A Loan secured by the lien on the Mortgaged Property,
subject to one Senior Lien on such Mortgaged Property.

      Securities: The Notes and the Trust Certificates.

      Securities Intermediary: A "securities intermediary" as defined in Section
8-102(a)(14) of the UCC that is holding a Trust Account for the Indenture
Trustee as the sole "entitlement holder" as defined in Section 8-102(a)(7) of
the UCC.

      Securitization: A sale or transfer of Loans by the Issuer at the direction
of the Majority Noteholders to any other Person in order to effect one or a
series of structured-finance Securitization transactions, including but not
limited to transactions involving the issuance of securities which may be
treated for federal income tax purposes as indebtedness of Option One or one or
more of its wholly-owned subsidiaries.

      Securityholder: Any Noteholder or Certificateholder.

      Senior Lien: With respect to any Second Lien Loan, the mortgage loan
having a senior priority lien on the related Mortgaged Property.

      Servicer: Option One, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.

      Servicer Call: The optional repurchase by the Servicer of a Loan pursuant
to Section 3.08(b) hereof.

      Servicer Event of Default: As described in Section 9.01 hereof.

      Servicer Put: The mandatory repurchase by the Servicer, at the option of
the Majority Noteholders, of a Loan pursuant to Section 3.08(a) hereof.

                                       23
<PAGE>

      Servicer's Fiscal Year: May 1st of each year through April 30th of the
following year.

      Servicer's Loan File: With respect to each Loan, the file held by the
Servicer, consisting of all documents (or electronic images thereof) relating to
such Loan, including, without limitation, copies of all of the Loan Documents
included in the related Custodial Loan File.

      Servicer's Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.

      Servicing Addendum: The terms and provisions set forth in Exhibit F
attached hereto relating to the administration and servicing of the Loans.

      Servicing Advance Reimbursement Amount: With respect to any Determination
Date, the amount of any Servicing Advances that have not been reimbursed as of
such date, including Nonrecoverable Servicing Advances.

      Servicing Advances: As defined in Section 4.14(b) of the Servicing
Addendum.

      Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 4.15 of the Servicing Addendum.

      Servicing Fee: As to each Loan (including any Loan that has been
foreclosed and for which the related Mortgaged Property has become a Foreclosure
Property, but excluding any Liquidated Loan), the fee payable monthly to the
Servicer, which shall be the product of 0.50% (50 basis points), or such other
lower amount as shall be mutually agreed to in writing by the Majority
Noteholders and the Servicer, and the Principal Balance of such Loan as of the
beginning of the related Remittance Period, divided by 12. The Servicing Fee
shall only be payable to the extent interest is collected on a Loan.

      Servicing Officer: Any officer of the Servicer or Subservicer involved in,
or responsible for, the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers annexed to an
Officer's Certificate furnished by the Servicer or the Subservicer,
respectively, on the date hereof to the Issuer and the Indenture Trustee, on
behalf of the Noteholders, as such list may from time to time be amended.

      S&P: Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc.

      State: Means any one of the states of the United States of America or the
District of Columbia.

      Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.22 of the Servicing Addendum in respect of
the qualifications of a Subservicer.

      Subservicing Account: An account established by a Subservicer pursuant to
a Subservicing Agreement, which account must be an Eligible Account.

                                       24
<PAGE>

      Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Loans
as provided in Section 4.22 in the Servicing Addendum.

      Subsidiary: With respect to any Person, any corporation, partnership or
other entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.

      Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 2.05 or Section 3.06 hereof, the amount, if any, by which
(a) the aggregate principal balance of any Qualified Substitute Loans (after
application of principal payments received on or before the related Transfer
Cut-off Date) is less than (b) the aggregate of the Principal Balances of the
related Deleted Loans as of the first day of the month in which such
substitution occurs.

      Tangible Net Worth: With respect to any Person, as of any date of
determination, the consolidated Net Worth of such Person and its Subsidiaries,
less the consolidated net book value of all assets of such Person and its
Subsidiaries (to the extent reflected as an asset in the balance sheet of such
Person or any Subsidiary at such date) which will be treated as intangibles
under GAAP, including, without limitation, such items as deferred financing
expenses, net leasehold improvements, good will, trademarks, trade names,
service marks, copyrights, patents, licenses and unamortized debt discount and
expense; provided, that residual securities issued by such Person or its
Subsidiaries shall not be treated as intangibles for purposes of this
definition.

      Termination Price: As of any Determination Date, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Loan included in the Trust as of the
end of the preceding Remittance Period; (ii) all unpaid interest accrued on the
Principal Balance of each such Loan at the related Loan Interest Rate to the end
of the preceding Remittance Period; and (iii) the aggregate fair market value of
each Foreclosure Property included in the Trust as of the end of the preceding
Remittance Period, as determined by an Independent appraiser acceptable to the
Majority Noteholders as of a date not more than 30 days prior to such Payment
Date.

      Transfer Cut-off Date: With respect to each Loan, the first day of the
month in which the Transfer Date with respect to such Loan occurs or if
originated in such month, the date of origination.

      Transfer Cut-off Date Principal Balance: As to each Loan, its Principal
Balance as of the opening of business on the Transfer Cut-off Date (after giving
effect to any payments received on the Loan before the Transfer Cut-off Date).

                                       25
<PAGE>

      Transfer Date: With respect to each Loan, the day such Loan is either (i)
sold and conveyed to the Depositor by the Loan Originator pursuant to the Loan
Purchase and Contribution Agreement and to the Issuer by the Depositor pursuant
to Section 2.01 hereof or (ii) sold to the Issuer pursuant to the Master
Disposition Confirmation Agreement, which results in an increase in the Note
Principal Balance by the related Additional Note Principal Balance. With respect
to any Qualified Substitute Loan, the Transfer Date shall be the day such Loan
is conveyed to the Trust pursuant to Section 2.05 or 3.06.

      Transfer Obligation: The obligation of the Loan Originator under Section
5.06 hereof to make certain payments in connection with Dispositions and other
related matters.

      Transfer Obligation Account: The account designated as such, established
and maintained pursuant to Section 5.05 hereof.

      Transfer Obligation Target Amount: With respect to any Payment Date, the
cumulative total of all withdrawals pursuant to Section 5.05(e), 5.05(f),
5.05(g), and 5.05(h) hereof from the Transfer Obligation Account to but not
including such Payment Date minus any amount withdrawn from the Transfer
Obligation Account to return to the Loan Originator pursuant to Section
5.05(i)(i).

      Trust: Option One Owner Trust 2003-4, the Delaware business trust created
pursuant to the Trust Agreement.

      Trust Agreement: The Trust Agreement dated as of August 8, 2003 among the
Depositor and the Owner Trustee.

      Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.

      Trust Accounts: The Distribution Account, the Collection Account and the
Transfer Obligation Account.

      Trust Certificate: The meaning assigned thereto in the Trust Agreement.

      Trust Estate: Shall mean the assets subject to this Agreement, the Trust
Agreement and the Indenture and assigned to the Trust, which assets consist of:
(i) such Loans as from time to time are subject to this Agreement as listed in
the Loan Schedule, as the same may be amended or supplemented on each Transfer
Date and by the removal of Deleted Loans and Unqualified Loans and by the
addition of Qualified Substitute Loans, together with the Servicer's Loan Files
and the Custodial Loan Files relating thereto and all proceeds thereof, (ii) the
Mortgages and security interests in the Mortgaged Properties, (iii) all payments
in respect of interest and principal with respect to each Loan received on or
after the related Transfer Cut-off Date, (iv) such assets as from time to time
are identified as Foreclosure Property, (v) such assets and funds as are from
time to time deposited in the Distribution Account, Collection Account and the
Transfer Obligation Account, including, without limitation, amounts on deposit
in such accounts that are invested in Permitted Investments, (vi) lenders'
rights under all Mortgage Insurance Policies and to any Mortgage Insurance
Proceeds, (vii) Net Liquidation Proceeds and Released Mortgaged Property
Proceeds, (viii) all right, title and interest of the Trust (but none of the

                                       26
<PAGE>

obligations) in and to the obligations of Hedging Counterparties under Hedging
Instruments and (ix) all right, title and interest of each of the Depositor, the
Loan Originator and the Trust in and under the Basic Documents including,
without limitation, the obligations of the Loan Originator under the Loan
Purchase and Contribution Agreement and/or the Master Disposition Confirmation
Agreement, and all proceeds of any of the foregoing.

      Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Servicing Compensation, the Owner Trustee Fee, the Indenture Trustee Fee and the
Custodian Fee, if any, and any expenses of the Servicer, the Owner Trustee, the
Indenture Trustee or the Custodian.

      UCC: The Uniform Commercial Code as in effect from time to time in the
State of New York.

      UCC Assignment: A form "UCC2" or "UCC3" statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction to reflect an
assignment of a secured party's interest in collateral.

      UCC1 Financing Statement: A financing statement meeting the requirements
of the Uniform Commercial Code of the relevant jurisdiction.

      Underwriting Guidelines: The underwriting guidelines (including the loan
origination guidelines) of the Loan Originator, as the same may be amended from
time to time with notice to the Note Agent.

      Unfunded Transfer Obligation: With respect to any date of determination,
an amount equal to (x) the sum of (A) 10% of the aggregate Collateral Value (as
of the related Transfer Date) of all Loans sold hereunder through and including
such date, plus (B) any amounts withdrawn from the Transfer Obligation Account
for return to the Loan Originator pursuant to Section 5.05(i)(i) hereof prior to
such Payment Date, less (y) the sum of (i) the aggregate amount of payments
theretofore actually made by the Loan Originator (or paid directly put of the
Transfer Obligation Account) in respect of the Transfer Obligation pursuant to
Section 5.06, (ii) the amount obtained by multiplying (a) as to each Disposition
that has previously occurred, the Unfunded Transfer Obligation Percentage as of
the date of such Disposition by (b) the aggregate Collateral Value of all Loans
that were the subject of that Disposition and (iii) without duplication, the
aggregate amount of the Repurchase Prices paid by the Servicer in respect of all
Servicer Puts theretofore effected.

      Unfunded Transfer Obligation Percentage: As of any date of determination,
an amount equal to (x) the Unfunded Transfer Obligation as of such date (before
any adjustment thereto made on such date), divided by (y) 100% of the aggregate
Collateral Values as of the related Transfer Date of all Loans in the Loan Pool.

      Unqualified Loan: As defined in Section 3.06(a) hereof.

      Wet Funded Custodial File Delivery Date: With respect to a Wet Funded
Loan, the later of the fifteenth Business Day and the twentieth calendar day
after the related Transfer Date, provided that if a Default or Event of Default
shall have occurred, the Wet Funded Custodial File

                                       27
<PAGE>

Delivery Date shall be the earlier of (x) such fifteenth Business Day or
twentieth calendar day and (y) the fifth day after the occurrence of such event.

      Wet Funded Loan: A Loan for which the related Custodial Loan File shall
not have been delivered to the Custodian as of the related Transfer Date.

      Whole Loan Sale: A Disposition of Loans pursuant to a whole-loan sale.

      Section 1.02 Other Definitional Provisions.

            (a) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.

            (b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.

            (c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under GAAP. To the extent that the definitions of accounting terms
in this Agreement or in any such certificate or other document are inconsistent
with the meanings of such terms under GAAP, the definitions contained in this
Agreement or in any such certificate or other document shall control.

            (d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."

            (e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.

                                   ARTICLE II

       CONVEYANCE OF THE TRUST ESTATE; ADDITIONAL NOTE PRINCIPAL BALANCES

      Section 2.01 Conveyance of the Trust Estate; Additional Note Principal
Balances.

            (a)   (i) On the terms and conditions of this Agreement, on each
Transfer Date during the Revolving Period, the Depositor agrees to offer for
sale and to sell a portion of each of the Loans and contribute to the capital of
the Issuer the balance of each of the Loans and

                                       28
<PAGE>

deliver the related Loan Documents to or at the direction of the Issuer. To the
extent the Issuer has or is able to obtain sufficient funds under the Note
Purchase Agreement and the Notes for the purchase thereof, the Issuer agrees to
purchase such Loans offered for sale by the Depositor. On the terms and
conditions of this Agreement and the Master Disposition Confirmation Agreement,
on each Transfer Date during the Revolving Period, the Issuer may acquire Loans
from another QSPE Affiliate of the Loan Originator to the extent the Issuer has
or is able to obtain sufficient funds for the purchase thereof.

                  (ii) In consideration of the payment of the Additional Note
Principal Balance pursuant to Section 2.06 hereof and as a contribution to the
assets of the Issuer, the Depositor as of the related Transfer Date and
concurrently with the execution and delivery hereof, hereby sells, transfers,
assigns, sets over and otherwise conveys to the Issuer, without recourse, but
subject to the other terms and provisions of this Agreement, all of the right,
title and interest of the Depositor in and to the Trust Estate.

                  (iii) During the Revolving Period, on each Transfer Date,
subject to the conditions precedent set forth in Section 2.06 and in accordance
with the procedures set forth in Section 2.01(c), the Depositor, pursuant to an
S&SA Assignment, will assign to the Issuer without recourse all of its
respective right, title and interest, in and to the Loans and all proceeds
thereof listed on the Loan Schedule attached to such S&SA Assignment, including
all interest and principal received by the Loan Originator, the Depositor or the
Servicer on or with respect to the Loans on or after the related Transfer
Cut-off Date, together with all right, title and interest in and to the proceeds
of any related Mortgage Insurance Policies and all of the Depositor's rights,
title and interest in and to (but none of its obligations under) the Loan
Purchase and Contribution Agreement and all proceeds of the foregoing.

                  (iv) The foregoing sales, transfers, assignments, set overs
and conveyances do not, and are not intended to, result in a creation or an
assumption by the Issuer of any of the obligations of the Depositor, the Loan
Originator or any other Person in connection with the Trust Estate or under any
agreement or instrument relating thereto except as specifically set forth
herein.

            (b) As of the Closing Date and as of each Transfer Date, the Issuer
acknowledges (or will acknowledge pursuant to the S&SA Assignment) the
conveyance to it of the Trust Estate, including all rights, title and interest
of the Depositor and any QSPE Affiliate in and to the Trust Estate, receipt of
which is hereby acknowledged by the Issuer. Concurrently with such delivery, as
of the Closing Date and as of each Transfer Date, pursuant to the Indenture the
Issuer pledges and grants a continuing first priority security interest in the
Trust Estate to the Indenture Trustee. In addition, concurrently with such
delivery and in exchange therefor, the Owner Trustee, pursuant to the
instructions of the Depositor, has executed (not in its individual capacity, but
solely as Owner Trustee on behalf of the Issuer) and caused the Trust
Certificates to be authenticated and delivered to or at the direction of the
Depositor.

            (c)   (i) Pursuant to and subject to the Note Purchase Agreement,
the Trust may, at its sole option, from time to time request that the Note Agent
advance on any Transfer Date Additional Note Principal Balances and the Note
Agent shall remit on such Transfer Date, to the Advance Account, an amount equal
to the Additional Note Principal Balance.

                                       29
<PAGE>

                  (ii) Notwithstanding anything to the contrary herein, in no
event shall the Note Agent be required to advance Additional Note Principal
Balances on a Transfer Date if the conditions precedent to a transfer of the
Loans under Section 2.06 and the conditions precedent to the purchase of
Additional Note Principal Balances set forth in Section 3.01 of the Note
Purchase Agreement have not been fulfilled.

                  (iii) The Servicer shall appropriately note such Additional
Note Principal Balance (and the increased Note Principal Balance) in the next
succeeding Payment Statement; provided, however, that failure to make any such
notation in such Payment Statement or any error in such notation shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest and principal payments in respect of
the Note Principal Balance held by such Noteholder. The Note Agent shall record
on the schedule attached to such Noteholder's Note, the date and amount of any
Additional Note Principal Balance advanced by it; provided, that failure to make
such recordation on such schedule or any error in such schedule shall not
adversely affect any Noteholder's rights with respect to its Note Principal
Balance and its right to receive interest payments in respect of the Note
Principal Balance held by such Noteholder.

                  (iv) Absent manifest error, the Note Principal Balance of each
Note as set forth in the Note Agent's records shall be binding upon the
Noteholders and the Trust, notwithstanding any notation made by the Servicer in
its Payment Statement pursuant to the preceding paragraph.

      Section 2.02 Ownership and Possession of Loan Files.

      With respect to each Loan, as of the related Transfer Date the ownership
of the related Promissory Note, the related Mortgage and the contents of the
related Servicer's Loan File and Custodial Loan File shall be vested in the
Trust for the benefit of the Securityholders, although possession of the
Servicer's Loan File on behalf of and for the benefit of the Securityholders
shall remain with the Servicer, and the Custodian shall take possession of the
Custodial Loan Files as contemplated in Section 2.05 hereof.

      Section 2.03 Books and Records; Intention of the Parties.

            (a) As of each Transfer Date, the sale of each of the Loans conveyed
by the Depositor on such Transfer Date shall be reflected on the balance sheets
and other financial statements of the Depositor and the Loan Originator, as the
case may be, as a sale of assets and a contribution to capital by the Loan
Originator and the Depositor, as applicable, under GAAP. Each of the Servicer
and the Custodian shall be responsible for maintaining, and shall maintain, a
complete set of books and records for each Loan which shall be clearly marked to
reflect the ownership of each Loan, as of the related Transfer Date, by the
Issuer and for the benefit of the Securityholders.

            (b) It is the intention of the parties hereto that, other than for
federal, state and local income or franchise tax purposes, the transfers and
assignments of the Trust Estate on the initial Closing Date, on each Transfer
Date and as otherwise contemplated by the Basic Documents and the Assignments
shall constitute a sale of the Trust Estate including, without

                                       30
<PAGE>

limitation, the Loans and all other property comprising the Trust Estate
specified in Section 2.01 (a) hereof, from the Depositor to the Issuer and such
property shall not be property of the Depositor. The parties hereto shall treat
the Notes as indebtedness for federal, state and local income and franchise tax
purposes.

            (c) If any of the assignments and transfers of the Loans and the
other property of the Trust Estate specified in Section 2.01 (a) hereof to the
Issuer pursuant to this Agreement or the conveyance of the Loans or any of such
other property of the Trust Estate to the Issuer, other than for federal, state
and local income or franchise tax purposes, is held or deemed not to be a sale
or is held or deemed to be a pledge of security for a loan, the Depositor
intends that the rights and obligations of the parties shall be established
pursuant to the terms of this Agreement and that, in such event, with respect to
such property, (i) consisting of Loans and related property, the Depositor shall
be deemed to have granted, as of the related Transfer Date, to the Issuer a
first priority security interest in the entire right, title and interest of the
Depositor in and to such Loans and proceeds and all other property conveyed to
the Issuer as of such Transfer Date, (ii) consisting of any other property
specified in Section 2.01 (a), the Depositor shall be deemed to have granted, as
of the initial Closing Date, to the Issuer a first priority security interest in
the entire right, title and interest of the Depositor in and to such property
and the proceeds thereof. In such event, with respect to such property, this
Agreement shall constitute a security agreement under applicable law.

            (d) On the Closing Date, the Depositor shall, at such party's sole
expense, cause to be filed a UCC1 Financing Statement naming the Issuer as
"secured party" and describing the Trust Estate being sold by the Depositor to
the Issuer with the office of the Secretary of State of the state in which the
Depositor is located (pursuant to Section 9-307 of the UCC) and any other
jurisdictions as shall be necessary to perfect a security interest in the Trust
Estate. In addition, on the Closing Date, the Loan Originator shall, at its
expense, cause to be filed a UCC1 Financing Statement naming the Depositor as
"secured party" and describing the Loans being sold by the Loan Originator to
the Depositor with the office of the Secretary of the State in which the Loan
Originator is located (pursuant to Section 9-307 of the UCC) and such other
jurisdictions as shall be necessary to perfect a security interest in the Trust
Estate.

      Section 2.04 Delivery of Loan Documents.

            (a) The Loan Originator shall, prior to the related Transfer Date
(or, in the case of each Wet Funded Loan, the related Wet Funded Custodial File
Delivery Date), in accordance with the terms and conditions set forth in the
Custodial Agreement, deliver or cause to be delivered to the Custodian, as the
designated agent of the Indenture Trustee, a Loan Schedule and each of the
documents constituting the Custodial Loan File with respect to each Loan. The
Loan Originator shall assure that (i) in the event that any Wet Funded Loan is
not closed and funded to the order of the appropriate Borrower on the day funds
are provided to the Loan Originator by the Note Agent on behalf of the Issuer,
such funds shall be promptly returned to the Note Agent on behalf of the Issuer
and (ii) in the event that any Wet Funded Loan is subject to a recission, all
funds received in connection with such recission shall be promptly returned to
the Note Agent on behalf of the Issuer.

                                       31
<PAGE>

            (b) The Loan Originator shall, on the related Transfer Date (or in
the case of a Wet Funded Loan, on or before the related Wet Funded Custodial
File Delivery Date), deliver or cause to be delivered to the Servicer the
related Servicer's Loan File (i) for the benefit of, and as agent for, the
Noteholders and (ii) for the benefit of the Indenture Trustee, on behalf of the
Noteholders, for so long as the Notes are outstanding; after the Notes are not
outstanding, the Servicer's Loan File shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Certificateholders.

            (c) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Custodial Loan Files in the State
of California (or upon prior written notice from the Custodian to the Loan
Originator and the Note Agent and delivery of an Opinion of Counsel with respect
to the continued perfection of the Indenture Trustee's security interest, in the
State of Minnesota or Utah) and, in connection therewith, shall act solely as
agent for the Noteholders in accordance with the terms hereof and not as agent
for the Loan Originator, the Servicer or any other party.

      Section 2.05 Acceptance by the Indenture Trustee of the Loans; Certain
Substitutions and Repurchases; Certification by the Custodian.

            (a) The Indenture Trustee declares that it will cause the Custodian
to hold the Custodial Loan Files and any additions, amendments, replacements or
supplements to the documents contained therein, as well as any other assets
included in the Trust Estate and delivered to the Custodian, in trust, upon and
subject to the conditions set forth herein. The Indenture Trustee further agrees
to cause the Custodian to execute and deliver such certifications as are
required under the Custodial Agreement and to otherwise direct the Custodian to
perform all of its obligations with respect to the Custodial Loan Files in
strict accordance with the terms of the Custodial Agreement.

            (b)   (i) With respect to any Loans which are set forth as
exceptions in the Exceptions Report, the Loan Originator shall cure such
exceptions by delivering such missing documents to the Custodian or otherwise
curing the defect no later than, in the case of (x) a non-Wet Funded Loan, 5
Business Days, or (y) in the case of a Wet Funded Loan one Business Day after
the Wet Funded Custodial File Delivery Date, in each case, following the receipt
of the first Exceptions Report listing such exception with respect to such Loan.

                  (ii) In the event that, with respect to any Loan, the Loan
Originator does not comply with the document delivery requirements of this
Section 2.05 and such failure has a material adverse effect on the value or
enforceability of any Loan or the interests of the Securityholders in any Loan,
the Loan Originator shall repurchase such Loan within one Business Day of notice
thereof from the Indenture Trustee or the Note Agent at the Repurchase Price
thereof with respect to such Loan by depositing such Repurchase Price in the
Collection Account. In lieu of such a repurchase, the Depositor and Loan
Originator may comply with the substitution provisions of Section 3.06 hereof.
The Loan Originator shall provide the Servicer, the Indenture Trustee, the
Issuer and the Note Agent with a certification of a Responsible Officer on or
prior to such repurchase or substitution indicating that the Loan Originator
intends to repurchase or substitute such Loan.

                                       32
<PAGE>

                  (iii) It is understood and agreed that the obligation of the
Loan Originator to repurchase or substitute any such Loan pursuant to this
Section 2.05(b) shall constitute the sole remedy with respect to such failure to
comply with the foregoing delivery requirements.

            (c) In performing its reviews of the Custodial Loan Files pursuant
to the Custodial Agreement, the Custodian shall have no responsibility to
determine the genuineness of any document contained therein and any signature
thereon. The Custodian shall not have any responsibility for determining whether
any document is valid and binding, whether the text of any assignment or
endorsement is in proper or recordable form, whether any document has been
recorded in accordance with the requirements of any applicable jurisdiction, or
whether a blanket assignment is permitted in any applicable jurisdiction.

            (d) The Servicer's Loan File shall be held in the custody of the
Servicer (i) for the benefit of, and as agent for, the Noteholders and (ii) for
the benefit of the Indenture Trustee, on behalf of the Noteholders, for so long
as the Notes are outstanding; after the Notes are not outstanding, the
Servicer's Loan File shall be held in the custody of the Servicer for the
benefit of, and as agent for, the Certificateholders. It is intended that, by
the Servicer's agreement pursuant to this Section 2.05(d), the Indenture Trustee
shall be deemed to have possession of the Servicer's Loan Files for purposes of
Section 9-313 of the Uniform Commercial Code of the state in which such
documents or instruments are located. The Servicer shall promptly report to the
Indenture Trustee any failure by it to hold the Servicer's Loan File as herein
provided and shall promptly take appropriate action to remedy any such failure.
In acting as custodian of such documents and instruments, the Servicer agrees
not to assert any legal or beneficial ownership interest in the Loans or such
documents or instruments. Subject to Section 8.01(d), the Servicer agrees to
indemnify the Securityholders and the Indenture Trustee, their officers,
directors, employees, agents and "control persons" as such term is used under
the Act and under the Securities Exchange Act of 1934, as amended for any and
all liabilities, obligations, losses, damages, payments, costs or expenses of
any kind whatsoever which may be imposed on, incurred by or asserted against the
Securityholders or the Indenture Trustee as the result of the negligence or
willful misfeasance by the Servicer relating to the maintenance and custody of
such documents or instruments which have been delivered to the Servicer;
provided, however, that the Servicer will not be liable for any portion of any
such amount resulting from the negligence or willful misconduct of any
Securityholders or the Indenture Trustee; and provided, further, that the
Servicer will not be liable for any portion of any such amount resulting from
the Servicer's compliance with any instructions or directions consistent with
this Agreement issued to the Servicer by the Indenture Trustee or the Majority
Noteholders. The Indenture Trustee shall have no duty to monitor or otherwise
oversee the Servicer's performance as custodian of the Servicer Loan File
hereunder.

      Section 2.06 Conditions Precedent to Transfer Dates.

      Two (2) Business Days prior to each Transfer Date, the Issuer shall give
notice to the Note Agent of such upcoming Transfer Date and provide an estimate
of the number of Loans and aggregate Principal Balance of such Loans to be
transferred on such Transfer Date. On the Business Day prior to each Transfer
Date, the Issuer shall provide the Note Agent a final Loan Schedule with respect
to the Loans to be transferred on such Transfer Date. On each Transfer

                                       33
<PAGE>

Date, the Depositor or the applicable QSPE Affiliate shall convey to the Issuer,
the Loans and the other property and rights related thereto described in the
related S&SA Assignment, and the Issuer, only upon the satisfaction of each of
the conditions set forth below on or prior to such Transfer Date, shall deposit
or cause to be deposited cash in the amount of the Additional Note Principal
Balance received from the Note Agent in the Advance Account in respect thereof,
and the Servicer shall, promptly after such deposit, withdraw the amount
deposited in respect of applicable Additional Note Principal Balance from the
Advance Account, and distribute such amount to or at the direction of the
Depositor or the applicable QSPE Affiliate.

      As of the Closing Date and each Transfer Date:

                  (i) the Depositor, the QSPE Affiliate and the Servicer, as
applicable, shall have delivered to the Issuer and the Note Agent duly executed
Assignments, which shall have attached thereto a Loan Schedule setting forth the
appropriate information with respect to all Loans conveyed on such Transfer Date
and shall have delivered to the Note Agent a computer readable transmission of
such Loan Schedule;

                  (ii) the Depositor shall have deposited, or caused to be
deposited, in the Collection Account all collections received with respect to
each of the Loans on and after the applicable Transfer Cut-off Date or, in the
case of purchases from a QSPE Affiliate, such QSPE Affiliate shall have
deposited, or caused to be deposited, in the Collection Account all collections
received with respect to each of the Loans and allocable to the period after the
related Transfer Date;

                  (iii) as of such Transfer Date, none of the Loan Originator,
the Depositor or the QSPE Affiliate, as applicable, shall (A) be insolvent, (B)
be made insolvent by its respective sale of Loans or (C) have reason to believe
that its insolvency is imminent;

                  (iv) the Revolving Period shall not have terminated;

                  (v) as of such Transfer Date (after giving effect to the sale
of Loans on such Transfer Date), there shall be no Overcollateralization
Shortfall;

                  (vi) in the case of non-Wet Funded Loans, the Issuer shall
have delivered the Custodial Loan File to the Custodian in accordance with the
Custodial Agreement and the Note Agent shall have received a copy of the Trust
Receipt and Exceptions Report reflecting such delivery;

                  (vii) each of the representations and warranties made by the
Loan Originator contained in Exhibit E with respect to the Loans shall be true
and correct in all respects as of the related Transfer Date with the same effect
as if then made and the proviso set forth in Section 3.05 with respect to Loans
sold by a QSPE Affiliate shall not be applicable to any Loans, and the Depositor
or the QSPE Affiliate, as applicable, shall have performed all obligations to be
performed by it under the Basic Documents on or prior to such Transfer Date;

                  (viii) the Depositor or the QSPE Affiliate shall, at its own
expense, within one Business Day following the Transfer Date, indicate in its
computer files that the

                                       34
<PAGE>

Loans identified in each S&SA Assignment have been sold to the Issuer pursuant
to this Agreement and the S&SA Assignment;

                  (ix) the Depositor or the QSPE Affiliate shall have taken any
action requested by the Indenture Trustee, the Issuer or the Noteholders
required to maintain the ownership interest of the Issuer in the Trust Estate;

                  (x) no selection procedures believed by the Depositor or the
QSPE Affiliate to be adverse to the interests of the Noteholders shall have been
utilized in selecting the Loans to be conveyed on such Transfer Date;

                  (xi) the Depositor shall have provided the Issuer, the
Indenture Trustee and the Note Agent no later than two Business Days prior to
such date a notice of Additional Note Principal Balance in the form of Exhibit A
hereto;

                  (xii) after giving effect to the Additional Note Principal
Balance associated therewith, the Note Principal Balance will not exceed the
Maximum Note Principal Balance;

                  (xiii) all conditions precedent to the Depositor's purchase of
Loans pursuant to the Loan Purchase and Contribution Agreement shall have been
fulfilled as of such Transfer Date and, in the case of purchases from a QSPE
Affiliate, all conditions precedent to the Issuer's purchase of Loans pursuant
to the Master Disposition Confirmation Agreement shall have been fulfilled as of
such Transfer Date;

                  (xiv) all conditions precedent to the Noteholders' purchase of
Additional Note Principal Balance pursuant to the Note Purchase Agreement shall
have been fulfilled as of such Transfer Date;

                  (xv) with respect to each Loan acquired from any QSPE
Affiliate that has a limited right of recourse to the Loan Originator under the
terms of the applicable loan purchase agreement, the Loan Originator has not
been required to pay any amount to or on behalf of such QSPE Affiliate that
lowered the recourse to the Loan Originator available to such QSPE Affiliate
below the maximum recourse to the Loan Originator available to such QSPE
Affiliate under the terms of the related loan purchase contract providing for
recourse by that QSPE Affiliate to the Loan Originator; and

                  (xvi) with respect to each Wet Funded Loan, there has been no
material adverse change in the financial condition of H&R Block, Inc. and the
Guaranty shall be in full force and effect.

      Section 2.07 Termination of Revolving Period.

      Upon the occurrence of (i) an Event of Default or Default or (ii) a Rapid
Amortization Trigger or (iii) the Unfunded Transfer Obligation Percentage equals
4.0% or less or (iv) Option One or any of its Affiliates shall default under, or
fail to perform as requested under, or shall otherwise materially breach the
terms of any repurchase agreement, loan and security agreement or similar credit
facility or agreement entered into by Option One or any of its Affiliates,

                                       35
<PAGE>

including the Sale and Servicing Agreement, dated as of April 1, 2001, among
Option One Owner Trust 2001-1A, the Depositor, Option One and the Indenture
Trustees the Sale and Servicing Agreement, dated as of April 1, 2001, among the
Option One Owner Trust 2001 -1 B, the Depositor, Option One and the Indenture
Trustee, the Sale and Servicing Agreement, dated as of April 1, 2001, among the
Option One Owner Trust 2001-2, the Depositor, Option One and the Indenture
Trustee, and the Sale and Servicing Agreement dated as of July 2, 2002, among
Option One Owner Trust 2002-3, the Depositor, Option One and the Indenture
Trustee, and such default, failure or breach shall entitle any counterparty to
declare the Indebtedness thereunder to be due and payable prior to the maturity
thereof, the Note Agent may, in any such case, in its sole discretion, terminate
the Revolving Period.

      Section 2.08 Correction of Errors.

      The parties hereto who have relevant information shall cooperate to
reconcile any errors in calculating the Sales Price from and after the Closing
Date. In the event that an error in the Sales Price is discovered by either
party, including without limitation, any error due to miscalculations of Market
Value where insufficient information has been provided with respect to a Loan to
make an accurate determination of Market Value as of any applicable Transfer
Date, any miscalculations of Principal Balance, accrued interest,
Overcollateralization Shortfall or aggregate unreimbursed Servicing Advances
attributable to the applicable Loan, or any prepayments not properly credited,
such party shall give prompt notice to the other parties hereto, and the party
that shall have benefitted from such error shall promptly remit to the other, by
wire transfer of immediately available funds, the amount of such error with no
interest thereon.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

      Section 3.01 Representations and Warranties of the Depositor.

      The Depositor hereby represents, warrants and covenants to the other
parties hereto and the Securityholders that as of the Closing Date and as of
each Transfer Date:

            (a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization and
has, and had at all relevant times, full power to own its property, to carry on
its business as currently conducted, to enter into and perform its obligations
under each Basic Document to which it is a party;

            (b) The execution and delivery by the Depositor of each Basic
Document to which the Depositor is a party and its performance of and compliance
with all of the terms thereof will not violate the Depositor's organizational
documents or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Depositor is a party or which are applicable to the Depositor or any of its
assets;

            (c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Basic Document to which the
Depositor is a

                                       36
<PAGE>

party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party; each Basic Document to which it is a party,
assuming due authorization, execution and delivery by the other party or parties
thereto, constitutes a valid, legal and binding obligation of the Depositor,
enforceable against it in accordance with the terms thereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and by general equity principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law);

            (d) The Depositor is not in violation of, and the execution and
delivery by the Depositor of each Basic Document to which the Depositor is a
party and its performance and compliance with the terms of each Basic Document
to which the Depositor is a party will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or any of its properties or materially and adversely
affect the performance of any of its duties hereunder;

            (e) There are no actions or proceedings against, or investigations
of, the Depositor currently pending with regard to which the Depositor has
received service of process and no action or proceeding against, or
investigation of, the Depositor is, to the knowledge of the Depositor,
threatened or otherwise pending before any court, administrative agency or other
tribunal that (A) if determined adversely to the Depositor, would prohibit its
entering into any of the Basic Documents to which it is a party or render the
Securities invalid, (B) seek to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by any of the Basic
Documents to which it is a party or (C) if determined adversely to the
Depositor, would prohibit or materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or enforceability of,
any of the Basic Documents to which it is a party or the Securities;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any of the
Basic Documents to which the Depositor is a party or the Securities, or for the
consummation of the transactions contemplated by any of the Basic Documents to
which the Depositor is a party, except for such consents, approvals,
authorizations and orders, if any, that have been obtained prior to such date;

            (g) The Depositor is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations hereunder; it will not be rendered insolvent by the execution and
delivery of any of the Basic Documents to which it is a party or the assumption
of any of its obligations thereunder; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Depositor;

            (h) The Depositor did not transfer the Loans sold thereon by the
Depositor to the Trust with any intent to hinder, delay or defraud any of its
creditors; nor will the Depositor be rendered insolvent as a result of such
sale;

                                       37
<PAGE>

            (i) The Depositor had good title to, and was the sole owner of, each
Loan sold thereon by the Depositor free and clear of any lien other than any
such lien released simultaneously with the sale contemplated herein, and,
immediately upon each transfer and assignment herein contemplated, the Depositor
will have delivered to the Trust good title to, and the Trust will be the sole
owner of, each Loan transferred by the Depositor thereon free and clear of any
lien;

            (j) The Depositor acquired title to each of the Loans sold thereon
by the Depositor in good faith, without notice of any adverse claim;

            (k) None of the Basic Documents to which the Depositor is a party,
nor any Officer's Certificate, statement, report or other document prepared by
the Depositor and furnished or to be furnished by it pursuant to any of the
Basic Documents to which it is a party or in connection with the transactions
contemplated thereby contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading;

            (l) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended;

            (m) The transfer, assignment and conveyance of the Loans by the
Depositor thereon pursuant to this Agreement is not subject to the bulk transfer
laws or any similar statutory provisions in effect in any applicable
jurisdiction;

            (n) The Depositor's principal place of business and chief executive
offices are located at Irvine, California or at such other address as shall be
designated by such party in a written notice to the other parties hereto;

            (o) The Depositor covenants that during the continuance of this
Agreement it will comply in all respects with the provisions of its
organizational documents in effect from time to time;

            (p) The Depositor covenants that during the continuance of this
Agreement it will comply in all respects with the restrictions on its activities
referenced in Section A.2. of the non-consolidation opinion of Manatt, Phelps &
Phillips, LLP, of even date herewith, with respect to the sale of Loans by the
Depositor to the Issuer; and

            (q) The representations and warranties set forth in (h), (i), (j)
and (m) above were true and correct (with respect to the applicable QSPE
Affiliate) with respect to each Loan transferred to the Trust by any QSPE
Affiliate at the time such Loan was transferred to a QSPE Affiliate.

      Section 3.02 Representations and Warranties of the Loan Originator.

      The Loan Originator hereby represents and warrants to the other parties
hereto and the Securityholders that as of the Closing Date and as of each
Transfer Date:

                                       38
<PAGE>

            (a) The Loan Originator is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and (i) is duly qualified, in good standing and licensed to carry
on its business in each state where any Mortgaged Property related to a Loan
sold by it is located and (ii) is in compliance with the laws of any such
jurisdiction, in both cases, to the extent necessary to ensure the
enforceability of such Loans in accordance with the terms thereof and had at all
relevant times, full corporate power to originate such Loans, to own its
property, to carry on its business as currently conducted and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Loan Originator of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Loan Originator's articles of organization or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under; or result in the breach or
acceleration of, any contract, agreement or other instrument to which the Loan
Originator is a party or which may be applicable to the Loan Originator or any
of its assets;

            (c) The Loan Originator has the full power and authority to enter
into and consummate all transactions contemplated by the Basic Documents to be
consummated by it, has duly authorized the execution, delivery and performance
of each Basic Document to which it is a party and has duly executed and
delivered each Basic Document to which it is a party; each Basic Document to
which it is a party, assuming due authorization, execution and delivery by each
of the other parties thereto, constitutes a valid, legal and binding obligation
of the Loan Originator, enforceable against it in accordance with the terms
hereof, except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws relating to or
affecting the rights of creditors generally, and by general equity principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law);

            (d) The Loan Originator is not in violation of, and the execution
and delivery of each Basic Document to which it is a party by the Loan
Originator and its performance and compliance with the terms of each Basic
Document to which it is a party will not constitute a violation with respect to,
any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Loan Originator or its properties or materially and adversely
affect the performance of its duties under any Basic Document to which it is a
party;

            (e) There are no actions or proceedings against, or investigations
of, the Loan Originator currently pending with regard to which the Loan
Originator has received service of process and no action or proceeding against,
or investigation of, the Loan Originator is, to the knowledge of the Loan
Originator, threatened or otherwise pending before any court, administrative
agency or other tribunal that (A) if determined adversely to the Loan
Originator, would prohibit its entering into any Basic Document to which it is a
party or render the Securities invalid, (B) seek to prevent the issuance of the
Securities or the consummation of any of the transactions contemplated by any
Basic Document to which it is a party or (C) if determined adversely to the Loan
Originator, would prohibit or materially and adversely affect the sale of the
Loans to the Depositor, the performance by the Loan Originator of its
obligations

                                       39
<PAGE>

under, or the validity or enforceability of, any Basic Document to which it is a
party or the Securities;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Loan Originator of, or compliance by the Loan Originator
with, any Basic Document to which it is a party, (2) the issuance of the
Securities, (3) the sale and contribution of the Loans, or (4) the consummation
of the transactions required of it by any Basic Document to which it is a party,
except such as shall have been obtained before such date;

            (g) Immediately prior to the sale of any Loan to the Depositor, the
Loan Originator had good title to the Loans sold by it on such date free and
clear of any lien;

            (h) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Loan Originator to the
Note Agent in connection with the negotiation, preparation or delivery of the
Basic Documents to which it is a party or delivered pursuant thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Loan
Originator to the Note Agent in connection with the Basic Documents to which it
is a party and the transactions contemplated thereby will be true, complete and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified.

            (i) The Loan Originator is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business and its
obligations under each Basic Document to which it is a party; it will not be
rendered insolvent by the execution and delivery of this Agreement or by the
performance of its obligations under each Basic Document to which it is a party;
no petition of bankruptcy (or similar insolvency proceeding) has been filed by
or against the Loan Originator prior to the date hereof;

            (j) The Loan Originator has transferred the Loans transferred by it
on or prior to such Transfer Date without any intent to hinder, delay or defraud
any of its creditors;

            (k) The Loan Originator has received fair consideration and
reasonably equivalent value in exchange for the Loans sold by it on such
Transfer Date to the Depositor;

            (l) The Loan Originator has not dealt with any broker or agent or
other Person who might be entitled to a fee, commission or compensation in
connection with the transaction contemplated by this Agreement;

            (m) The Loan Originator is in compliance with each of its financial
covenants set forth in Section 7.02; and

            (n) The Loan Originator's principal place of business and chief
executive offices are located at Irvine, California or at such other address as
shall be designated by such party in a written notice to the other parties
hereto.

                                       40
<PAGE>

      It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Custodial
Loan Files to the Custodian (as the agent of the Indenture Trustee) and shall
inure to the benefit of the Securityholders, the Depositor, the Servicer, the
Indenture Trustee, the Owner Trustee and the Issuer. Upon discovery by the Loan
Originator, the Depositor, the Servicer, the Indenture Trustee, the Note Agent
or the Trust of a breach of any of the foregoing representations and warranties
that materially and adversely affects the value of any Loan or the interests of
the Securityholders in any Loan or in the Securities, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties. The obligations of the Loan
Originator set forth in Sections 2.05 and 3.06 hereof to cure any breach or to
substitute for or repurchase an affected Loan shall constitute the sole remedies
available hereunder to the Securityholders, the Depositor, the Servicer, the
Indenture Trustee or the Trust respecting a breach of the representations and
warranties contained in this Section 3.02. The fact that the Note Agent has
conducted or has failed to conduct any partial or complete due diligence
investigation of the Loan Files shall not affect the Securityholders rights to
demand repurchase or substitution as provided under this Agreement.

      Section 3.03 Representations, Warranties and Covenants of the Servicer.

      The Servicer hereby represents and warrants to and covenants with the
other parties hereto and the Securityholders that as of the Closing Date and as
of each Transfer Date:

            (a) The Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and (i) is duly
qualified, in good standing and licensed to carry on its business in each state
where any Mortgaged Property is located, and (ii) is in compliance with the laws
of any such state, in both cases, to the extent necessary to ensure the
enforceability of the Loans in accordance with the terms thereof and to perform
its duties under each Basic Document to which it is a party and had at all
relevant times, full corporate power to own its property, to carry on its
business as currently conducted, to service the Loans and to enter into and
perform its obligations under each Basic Document to which it is a party;

            (b) The execution and delivery by the Servicer of each Basic
Document to which it is a party and its performance of and compliance with the
terms thereof will not violate the Servicer's articles of incorporation or
by-laws or constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, or result in the breach or
acceleration of, any material contract, agreement or other instrument to which
the Servicer is a party or which are applicable to the Servicer or any of its
assets;

            (c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by each Basic Document to which it is a
party, has duly authorized the execution, delivery and performance of each Basic
Document to which it is a party and has duly executed and delivered each Basic
Document to which it is a party. Each Basic Document to which it is a party,
assuming due authorization, execution and delivery by each of the other parties
thereto, constitutes a valid, legal and binding obligation of the Servicer,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other similar

                                       41
<PAGE>

laws relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);

            (d) The Servicer is not in violation of, and the execution and
delivery of each Basic Document to which it is a party by the Servicer and its
performance and compliance with the terms of each Basic Document to which it is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or materially and adversely affect the performance of its duties under
any Basic Document to which it is a party;

            (e) There are no actions or proceedings against, or investigations
of, the Servicer currently pending with regard to which the Servicer has
received service of process and no action or proceeding against, or
investigation of, the Servicer is, to the knowledge of the Servicer, threatened
or otherwise pending before any court, administrative agency or other tribunal
that (A) if determined adversely to the Servicer, would prohibit its entering
into any Basic Document to which it is a party, (B) seek to prevent the
consummation of any of the transactions contemplated by any Basic Document to
which it is a party or (C) if determined adversely to the Servicer, would
prohibit or materially and adversely affect the performance by the Servicer of
its obligations under, or the validity or enforceability of, any Basic Document
to which it is a party or the Securities;

            (f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, any Basic
Document to which it is a party or the Securities, or for the consummation of
the transactions contemplated by any Basic Document to which it is a party,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to such date;

            (g) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Servicer to the Note Agent
in connection with the negotiation, preparation or delivery of the Basic
Documents to which it is a party or delivered pursuant thereto, when taken as a
whole, do not contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Servicer to
the Note Agent in connection with the Basic Documents to which it is a party and
the transactions contemplated thereby will be true, complete and accurate in
every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.

            (h) The Servicer is solvent and will not be rendered insolvent as a
result of the performance of its obligations pursuant to under the Basic
Documents to which it is a party;

            (i) The Servicer acknowledges and agrees that the Servicing
Compensation represents reasonable compensation for the performance of its
services hereunder and that the

                                       42
<PAGE>

entire Servicing Compensation shall be treated by the Servicer, for accounting
purposes, as compensation for the servicing and administration of the Loans
pursuant to this Agreement;

            (j) The Servicer is in compliance with each of its financial
covenants set forth in Section 7.02; and

            (k) The Servicer is an Eligible Servicer and covenants to remain an
Eligible Servicer or, if not an Eligible Servicer, each Subservicer is an
Eligible Servicer and the Servicer covenants to cause each Subservicer to be an
Eligible Servicer; and

            (l) The Servicer shall (1) remit to the Lock-Box Clearing Custodial
Account, all Monthly Payments within one Business Day of the Servicer's receipt
of such Monthly Payments and (2) transfer those Monthly Payments which relate to
Loans owned by the Trust from the Lock-Box Clearing Custodial Account to the
Collection Account within two Business Days of the Servicer's receipt of such
Monthly Payments.

      It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Custodial Loan Files to the Indenture Trustee or the Custodian on its
behalf and shall inure to the benefit of the Depositor, the Securityholders, the
Note Agent, the Indenture Trustee and the Issuer. Upon discovery by the Loan
Originator, the Depositor, the Servicer, the Indenture Trustee, the Owner
Trustee or the Issuer of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the value of any
Loan or the interests of the Securityholders therein or in the Securities, the
party discovering such breach shall give prompt written notice (but in no event
later than two Business Days following such discovery) to the other parties. The
fact that the Note Agent has conducted or has failed to conduct any partial or
complete due diligence investigation shall not affect the Securityholders,
rights to exercise their remedies as provided under this Agreement.

      Section 3.04 Reserved.

      Section 3.05 Representations and Warranties Regarding Loans.

      The Loan Originator makes each of the representations and warranties set
forth on Exhibit E hereto with respect to each Loan, provided, however, that
with respect to each Loan transferred to the Issuer by a QSPE Affiliate, to the
extent that the Loan Originator has at the time of such transfer actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator shall
notify the Note Agent of such facts or circumstances and, in such event, shall
have no obligation to make such materially false representation and warranty.

      In addition, the Loan Originator represents and warrants with respect to
each Loan sold by a QSPE Affiliate that the Loan Originator has not been
required to pay any amount to or on behalf of such QSPE Affiliate that lowered
the recourse to the Loan Originator available to such QSPE Affiliate below the
maximum recourse to the Loan Originator available to such QSPE Affiliate under
the terms of any loan purchase agreement providing for recourse by that QSPE
Affiliate to the Loan Originator.

                                       43
<PAGE>

      Section 3.06 Purchase and Substitution.

            (a) It is understood and agreed that the representations and
warranties set forth in Exhibit E hereto shall survive the conveyance of the
Loans to the Indenture Trustee on behalf of the Issuer, and the delivery of the
Securities to the Securityholders. Upon discovery by the Depositor, the
Servicer, the Loan Originator, the Custodian, the Issuer, the Indenture Trustee,
the Note Agent or any Securityholder of a breach of any of such representations
and warranties or the representations and warranties of the Loan Originator set
forth in Section 3.02 which materially and adversely affects the value or
enforceability of any Loan or the interests of the Securityholders in any Loan
(notwithstanding that such representation and warranty was made to the Loan
Originator's best knowledge) or which constitutes a breach of the
representations and warranties set forth in Exhibit E, the party discovering
such breach shall give prompt written notice to the others. The Loan Originator
shall within 5 Business Days of the earlier of the Loan Originator's discovery
or the Loan Originator's receiving notice of any breach of a representation or
warranty, promptly cure such breach in all material respects. If within 5
Business Days after the earlier of the Loan Originator's discovery of such
breach or the Loan Originator's receiving notice thereof such breach has not
been remedied by the Loan Originator and such breach materially and adversely
affects the interests of the Securityholders in the related Loan (an
"Unqualified Loan"), the Loan Originator shall promptly upon receipt of written
instructions from the Majority Noteholders either (i) remove such Unqualified
Loan from the Trust (in which case it shall become a Deleted Loan) and
substitute one or more Qualified Substitute Loans in the manner and subject to
the conditions set forth in this Section 3.06 or (ii) purchase such Unqualified
Loan at a purchase price equal to the Repurchase Price with respect to such
Unqualified Loan by depositing or causing to be deposited such Repurchase Price
in the Collection Account.

      Any substitution of Loans pursuant to this Section 3.06(a) shall be
accompanied by payment by the Loan Originator of the Substitution Adjustment, if
any, (x) if no Overcollateralization Shortfall exists on the date of such
substitution (after giving effect to such substitution), remitted to the
Noteholders in accordance with Section 5.01(c)(4)(i) or (y) otherwise to be
deposited in the Collection Account pursuant to Section 5.01(b) hereof.

            (b) As to any Deleted Loan for which the Loan Originator substitutes
a Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Indenture Trustee and Note Agent a
certification executed by a Responsible Officer of the Loan Originator to the
effect that the Substitution Adjustment, if any, has been (x) if no
Overcollateralization Shortfall exists on the date of such substitution (after
giving effect to such substitution), remitted to the Noteholders in accordance
with Section 5.01(c)(4)(i), or (y) otherwise deposited in the Collection
Account. As to any Deleted Loan for which the Loan Originator substitutes a
Qualified Substitute Loan or Loans, the Loan Originator shall effect such
substitution by delivering to the Custodian the documents constituting the
Custodial Loan File for such Qualified Substitute Loan or Loans.

      The Servicer shall deposit in the Collection Account all payments received
in connection with each Qualified Substitute Loan after the date of such
substitution. Monthly Payments received with respect to Qualified Substitute
Loans on or before the date of substitution will be retained by the Loan
Originator. The Trust will be entitled to all payments received on the

                                       44
<PAGE>

Deleted Loan on or before the date of substitution and the Loan Originator shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Loan. The Loan Originator shall give written notice to the Issuer,
the Servicer (if the Loan Originator is not then acting as such), the Indenture
Trustee and Note Agent that such substitution has taken place and the Servicer
shall amend the Loan Schedule to reflect (i) the removal of such Deleted Loan
from the terms of this Agreement and (ii) the substitution of the Qualified
Substitute Loan. The Servicer shall promptly deliver to the Issuer, the Loan
Originator, the Indenture Trustee and Note Agent, a copy of the amended Loan
Schedule. Upon such substitution, such Qualified Substitute Loan or Loans shall
be subject to the terms of this Agreement in all respects, and the Loan
Originator shall be deemed to have made with respect to such Qualified
Substitute Loan or Loans, as of the date of substitution, the covenants,
representations and warranties set forth in Exhibit E hereto. On the date of
such substitution, the Loan Originator will (x) if no Overcollateralization
Shortfall exists as of the date of substitution (after giving effect to such
substitution), remit to the Noteholders as provided in Section 5.01(c)(4)(i) or
(y) otherwise deposit into the Collection Account, in each case an amount equal
to the related Substitution Adjustment, if any. In addition, on the date of such
substitution, the Servicer shall cause the Indenture Trustee to release the
Deleted Loan from the lien of the Indenture and the Servicer will cause such
Qualified Substitute Loan to be pledged to the Indenture Trustee under the
Indenture as part of the Trust Estate.

            (c) With respect to all Unqualified Loans or other Loans repurchased
by the Loan Originator pursuant to this Agreement, upon the deposit of the
Repurchase Price therefor into the Collection Account or the conveyance of one
or more Qualified Substitute Loans and payment of any Substitution Adjustment,
(i) the Issuer shall assign to the Loan Originator, without representation or
warranty, all of the Issuer's right, title and interest in and to such
Unqualified Loan, which right, title and interest were conveyed to the Issuer
pursuant to Section 2.01 hereof, and (ii) the Indenture Trustee shall assign to
the Loan Originator, without recourse, representation or warranty, all the
Indenture Trustee's right, title and interest in and to such Unqualified Loans
or Loans, which right, title and interest were conveyed to the Indenture Trustee
pursuant to Section 2.01 hereof and the Indenture. The Issuer and the Indenture
Trustee shall, at the expense of the Loan Originator, take any actions as shall
be reasonably requested by the Loan Originator to effect the repurchase of any
such Loans and to have the Custodian return the Custodial Loan File of the
deleted Loan to the Servicer.

            (d) It is understood and agreed that the obligations of the Loan
Originator set forth in this Section 3.06 to cure, purchase or substitute for
Unqualified Loans constitute the sole remedies hereunder of the Depositor, the
Issuer, the Indenture Trustee, the Note Agent, the Owner Trustee and the
Securityholders respecting a breach of the representations and warranties
contained in Sections 3.02 hereof and in Exhibit E hereto. Any cause of action
against the Loan Originator relating to or arising out of a defect in a
Custodial Loan File or against the Loan Originator relating to or arising out of
a breach of any representations and warranties made in Sections 3.02 hereof and
in Exhibit E hereto shall accrue as to any Loan upon (i) discovery of such
defect or breach by any party and notice thereof to the Loan Originator or
notice thereof by the Loan Originator to the Indenture Trustee, (ii) failure by
the Loan Originator to cure such defect or breach or purchase or substitute such
Loan as specified above, and (iii) demand upon the Loan Originator, as
applicable, by the Issuer or the Majority Noteholders for all amounts payable in
respect of such Loan.

                                       45
<PAGE>

            (e) Neither the Issuer nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Loan pursuant to this Section or the eligibility of any Loan
for purposes of this Agreement.

      Section 3.07 Dispositions.

            (a) The Majority Noteholders may at any time, and from time to time,
require that the Issuer redeem all or any portion of the Note Principal Balance
of the Notes by paying the Note Redemption Amount with respect to the Note
Principal Balance to be redeemed. In connection with any such redemption, the
Issuer shall effect Dispositions at the direction of the Majority Noteholders in
accordance with this Agreement, including in accordance with this Section 3.07.

            (b)   (i) In consideration of the consideration received from the
Depositor under the Loan Purchase and Contribution Agreement, the Loan
Originator hereby agrees and covenants that in connection with each Disposition
it shall effect the following:

                  (A) make such representations and warranties concerning the
Loans as of the "cut-off date" of the related Disposition to the Disposition
Participants as may be necessary to effect the Disposition and such additional
representations and warranties as may be necessary, in the reasonable opinion of
any of the Disposition Participants, to effect such Disposition; provided, that,
to the extent that the Loan Originator has at the time of the Disposition actual
knowledge of any facts or circumstances that would render any of such
representations and warranties materially false, the Loan Originator may notify
the Disposition Participants of such facts or circumstances and, in such event,
shall have no obligation to make such materially false representation and
warranty;

                  (B) supply such information, opinions of counsel, letters from
law and/or accounting firms and other documentation and certificates regarding
the origination of the Loans as any Disposition Participant shall reasonably
request to effect a Disposition and enter into such indemnification agreements
customary for such transaction relating to or in connection with the Disposition
as the Disposition Participants may reasonably require;

                  (C) make itself available for and engage in good faith
consultation with the Disposition Participants concerning information to be
contained in any document, agreement, private placement memorandum, or filing
with the Securities and Exchange Commission relating to the Loan Originator or
the Loans in connection with a Disposition and shall use reasonable efforts to
compile any information and prepare any reports and certificates, into a form,
whether written or electronic, suitable for inclusion in such documentation;

                  (D) to implement the foregoing and to otherwise effect a
Disposition, enter into, or arrange for its Affiliates to enter into insurance
and indemnity agreements, underwriting or placement agreements, servicing
agreements, purchase agreements and any other documentation which may reasonably
be required of or reasonably deemed appropriate by the Disposition Participants
in order to effect a Disposition; and

                                       46
<PAGE>

                  (E) take such further actions as may be reasonably necessary
to effect the foregoing;

provided, that notwithstanding anything to the contrary, (a) the Loan Originator
shall have no liability for the Loans arising from or relating to the ongoing
ability of the related Borrowers to pay under the Loans; (b) none of the
indemnities hereunder shall constitute an unconditional guarantee by the Loan
Originator of collectibility of the Loans; (c) the Loan Originator shall have no
obligation with respect to the financial inability of any Borrower to pay
principal, interest or other amount owing by such Borrower under a Loan; and (d)
the Loan Originator shall only be required to enter into documentation in
connection with Dispositions that is consistent with the prior public
securitizations of affiliates of the Loan Originator, provided that to the
extent an Affiliate of the Note Agent acts as "depositor" or performs a similar
function in a Securitization, additional indemnities and informational
representations and warranties are provided which are consistent with those in
the Basic Documents and may upon request of the Loan Originator be set forth in
a separate agreement between an Affiliate of the Note Agent and the Loan
Originator.

                  (ii) In the event of any Disposition to the Loan Originator or
any of its Affiliates (except in connection with a Securitization or a
Disposition to a QSPE Affiliate), the purchase price paid by the Loan Originator
or any such Affiliate shall be the "fair market value" of the Loans subject to
such Disposition (as determined by the Market Value Agent based upon recent
sales of comparable loans or such other objective criteria as may be approved
for determining "fair market value" by a "Big Five" national accounting firm).

                  (iii) As long as no Event of Default or Default shall have
occurred and be continuing under this Agreement or the Indenture, the Servicer
may continue to service the Loans included in any Disposition subject to any
applicable "term-to-term" servicing provisions in Section 9.0l(c) and subject to
any required amendments to the related servicing provisions as may be necessary
to effect the related Disposition including but not limited to the obligation to
make recoverable principal and interest advances on the Loans.

            After the termination of the Revolving Period, the Loan Originator,
the Issuer and the Depositor shall use commercially reasonable efforts to effect
a Disposition at the direction of the Disposition Agent.

            (c) The Issuer shall effect Dispositions at the direction of the
Majority Noteholders in accordance with the terms of this Agreement and the
Basic Documents. In connection therewith, the Trust agrees to assist the Loan
Originator in such Dispositions and accordingly it shall, at the request and
direction of the Majority Noteholders:

                  (i) transfer, deliver and sell all or a portion of the Loans,
as of the "cut-off dates" of the related Dispositions, to such Disposition
Participants as may be necessary to effect the Dispositions; provided, that any
such sale shall be for "fair market value," as determined by the Market Value
Agent in its reasonable discretion;

                  (ii) deposit the cash Disposition Proceeds into the
Distribution Account pursuant to Section 5.01(c)(2)(D);

                                       47
<PAGE>

                  (iii) to the extent that a Securitization creates any Retained
Securities, to accept such Retained Securities as a part of the Disposition
Proceeds in accordance with the terms of this Agreement; and

                  (iv) take such further actions, including executing and
delivering documents, certificates and agreements, as may be reasonably
necessary to effect such Dispositions.

            (d) The Servicer hereby covenants that it will take such actions as
may be reasonably necessary to effect Dispositions as the Disposition
Participants may request and direct, including without limitation providing the
Loan Originator such information as may be required to make representations and
warranties required hereunder, and covenants that it will make such
representations and warranties regarding its servicing of the Loans hereunder as
of the Cut-off Date of the related Disposition as reasonably required by the
Disposition Participants.

            (e) [Reserved]

            (f) The Majority Noteholders may effect Whole Loan Sales upon
written notice to the Servicer of its intent to cause the Issuer to effect a
Whole Loan Sale at least 5 Business Days in advance thereof. The Disposition
Agent shall serve as agent for Whole Loan Sales and will receive a reasonable
fee for such services provided that no such fee shall be payable if (i) the Loan
Originator or its Affiliates purchase such Loans and (ii) no Event of Default or
Default shall have occurred. The Loan Originator or its Affiliates may
concurrently bid to purchase Loans in a Whole Loan Sale; provided, however, that
neither the Loan Originator nor any such Affiliates shall pay a price in excess
of the fair market value thereof (as determined by the Market Value Agent based
upon recent sales of comparable loans or such other objective criteria as may be
approved for determining "fair market value" by a "Big Five" national accounting
firm). In the event that the Loan Originator does not bid in any such Whole Loan
Sale, it shall have a right of first refusal to purchase the Loans offered for
sale at the price offered by the highest bidder. The Disposition Agent shall
conduct any Whole Loan Sale subject to the Loan Originator's right of first
refusal and shall promptly notify the Loan Originator of the amount of the
highest bid. The Loan Originator shall have five (5) Business Days following its
receipt of such notice to exercise its right of first refusal by notifying the
Disposition Agent in writing.

            (g) Except as otherwise expressly set forth under this Section 3.07,
the parties' rights and obligations under this Section 3.07 shall continue
notwithstanding the occurrence of an Event of Default.

            (h) The Disposition Participants (and the Majority Noteholders to
the extent directing the Disposition Participants) shall be independent
contractors to the Issuer and shall have no fiduciary obligations to the Issuer
or any of its Affiliates. In that connection, the Disposition Participants shall
not be liable for any error of judgment made in good faith and shall not be
liable with respect to any action they take or omits to take in good faith in
the performance of their duties.

      Section 3.08 Servicer Put; Servicer Call.

                                       48
<PAGE>
            (a) Servicer Put. The Servicer shall promptly purchase, upon the
written demand of the Majority Noteholders, any Put/Call Loan; provided,
however, that the Servicer may, upon receipt of such demand, elect to repurchase
such Put/Call Loan pursuant to (b) below, in which case such repurchase shall be
deemed a Servicer Call.

            (b) Servicer Call. The Servicer may repurchase any Put/Call Loan at
any time. Such Servicer Calls shall be solely at the option of the Servicer.
Prior to exercising a Servicer Call, the Servicer shall deliver written notice
to the Majority Noteholders and the Indenture Trustee which notice shall
identify each Loan to be purchased and the Repurchase Price therefor; provided,
however, that the Servicer may irrevocably waive its right to repurchase any
Put/Call Loan as soon as reasonably practicable following its receipt of notice
of the occurrence of any event or events giving rise to such Loan being a
Put/Call Loan.

            (c) In connection with each Servicer Put, the Servicer shall remit
for deposit into the Collection Account the Repurchase Price for the Loans to be
repurchased. In connection with each Servicer Call, the Servicer shall deposit
into the Collection Account the Repurchase Price for the Loans to be purchased.
The aggregate Repurchase Price of all Loans transferred pursuant to Section
3.08(a) shall in no event exceed the Unfunded Transfer Obligation at the time of
any Servicer Put.

      Section 3.09 Modification of Underwriting Guidelines.

      The Loan Originator shall give the Note Agent prompt written notification
of any modification or change to the Underwriting Guidelines. If the Noteholder
objects in writing to any modification or change to the Underwriting Guidelines
within 15 days after receipt of such notice, no Loans may be conveyed to the
Issuer pursuant to this Agreement unless such Loans have been originated
pursuant to the Underwriting Guidelines without giving effect to such
modification or change. Notwithstanding anything contained in this Agreement to
the contrary, any Loan conveyed to the Issuer pursuant to this Agreement
pursuant to a modification or change to the Underwriting Guidelines that has
been rejected by the Note Agent or which the Note Agent did not receive notice
of, such Loan shall be deemed an Unqualified Loan and be repurchased or
substituted for in accordance with Section 3.06.

                                   ARTICLE IV

                    ADMINISTRATION AND SERVICING OF THE LOANS

      Section 4.01 Servicer's Servicing Obligations.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with the terms and provisions set forth in
the Servicing Addendum, which Servicing Addendum is incorporated herein by
reference.

                                    ARTICLE V

              ESTABLISHMENT OF TRUST ACCOUNTS; TRANSFER OBLIGATION

      Section 5.01 Collection Account and Distribution Account.

                                       49
<PAGE>

            (a)   (1) Establishment of Collection Account. The Servicer, for the
benefit of the Noteholders, shall cause to be established and maintained one or
more Collection Accounts (collectively, the "Collection Account"), which shall
be separate Eligible Accounts entitled "Option One Owner Trust 2003-4 Collection
Account, Wells Fargo Bank Minnesota, National Association, as Indenture Trustee,
for the benefit of the Option One Owner Trust 2003-4 Mortgage-Backed Notes." The
Collection Account shall be maintained with a depository institution and shall
satisfy the requirements set forth in the definition of Eligible Account. Funds
in the Collection Account shall be invested in accordance with Section 5.03
hereof. Net investment earnings shall not be considered part of funds available
in the Collection Account.

                  (2) Establishment of Distribution Account. The Servicer, for
the benefit of the Noteholders, shall cause to be established and maintained,
one or more Distribution Accounts (collectively, the "Distribution Account"),
which shall be separate Eligible Accounts, entitled "Option One Owner Trust
2003-4 Distribution Account, Wells Fargo Bank Minnesota, National Association,
as Indenture Trustee, for the benefit of the Option One Owner Trust 2003-4
Mortgage-Backed Notes." The Distribution Account shall be maintained with a
depository institution and shall satisfy the requirements set forth in the
definition of Eligible Account. Funds in the Distribution Account shall be
invested in accordance with Section 5.03 hereof. The Servicer may, at its
option, maintain one account to serve as both the Distribution Account and the
Collection Account, in which case, the account shall be entitled "Option One
Owner Trust 2003-4 Collection/Distribution Account, Wells Fargo Bank Minnesota,
National Association, as Indenture Trustee, for the benefit of the Option One
Owner Trust 2003-4 Mortgage-Backed Notes." If the Servicer makes such an
election, all references herein or in any other Basic Document to either the
Collection Account or the Distribution Account shall mean the
Collection/Distribution Account described in the preceding sentence.

                  (3) The Servicer will inform the Indenture Trustee of the
location of any accounts held in the Indenture Trustee's name, including any
location to which an account is transferred.

                  (4) Upon the termination of any Blocked Account Agreement
(other than a termination consented to by the Indenture Trustee and the Note
Agent upon the termination of the Lien of the Indenture upon the Trust
Accounts), the Servicer shall promptly (and in any event no later than thirty
(30) days following any such termination) establish a replacement Trust Account
(which shall constitute an Eligible Account) at a Designated Depository
Institution approved in writing by the Indenture Trustee and the Note Agent.

            (b) Deposits to Collection Account. The Servicer shall deposit or
cause to be deposited (without duplication):

                  (i) all payments on or in respect of each Loan collected on or
after the related Transfer Cut- off Date or with respect to each Loan purchased
from a QSPE Affiliate, all such payments allocable to such Loan on or after the
related Transfer Date (net, in each case, of any Servicing Compensation retained
therefrom) within two (2) Business Days after receipt thereof;

                                       50
<PAGE>

                  (ii) all Net Liquidation Proceeds within two (2) Business Days
after receipt thereof;

                  (iii) any amounts payable in connection with the repurchase of
any Loan and the amount of any Substitution Adjustment pursuant to Sections 2.05
and 3.06 hereof concurrently with payment thereof;

                  (iv) any Repurchase Price payable in connection with a
Servicer Call pursuant to Section 3.08 hereof concurrently with payment thereof;

                  (v) the deposit of the Termination Price under Section 10.02
hereof concurrently with payment thereof;

                  (vi) Nonutilization Fees;

                  (vii) [Reserved];

                  (viii) any payments received under Hedging Instruments or the
return of amounts by the Hedging Counterparty pledged pursuant to prior Hedge
Funding Requirements in accordance with the last sentence of this Section
5.01(b); and

                  (ix) any Repurchase Price payable in connection with a
Servicer Put remitted by the Servicer pursuant to Section 3.08.

      Except as otherwise expressly provided in Section 5.01(c)(4)(i), the
Servicer agrees that it will cause the Loan Originator, Borrower or other
appropriate Person paying such amounts, as the case may be, to remit directly to
the Servicer for deposit into the Collection Account all amounts referenced in
clauses (i) through (ix) to the extent such amounts are in excess of a Monthly
Payment on the related Loan. To the extent the Servicer receives any such
amounts, it will deposit them into the Collection Account on the same Business
Day as receipt thereof.

            (c) Withdrawals From Collection Account; Deposits to Distribution
Account.

                  (1) Withdrawals From Collection Account -- Reimbursement
Items. The Paying Agent shall periodically but in any event on each
Determination Date, make the following withdrawals from the Collection Account
prior to any other withdrawals, in no particular order of priority:

                  (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error, including Servicing
Compensation;

                  (ii) to withdraw the Servicing Advance Reimbursement Amount;
and

                  (iii) to clear and terminate the Collection Account in
connection with the termination of this Agreement.

                  (2) Deposits to Distribution Account - Payment Dates.

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<PAGE>

                  (A) On the Business Day prior to each Payment Date, the Paying
Agent shall deposit into the Distribution Account such amounts as are required
from the Transfer Obligation Account pursuant to Sections 5.05(e), 5.05(f),
5.05(g) and 5.05(h).

                  (B) After making all withdrawals specified in Section
5.01(c)(l) above, on each Remittance Date, the Paying Agent (based on
information provided by the Servicer for such Payment Date), shall withdraw the
Monthly Remittance Amount (or, with respect to an additional Payment Date
pursuant to Section 5.01(c)(4)(ii), all amounts on deposit in the Collection
Account on such date up to the amount necessary to make the payments due on the
related Payment Date in accordance with Section 5.01(c)(3)) from the Collection
Account not later than 5:00 P.M., New York City time and deposit such amount
into the Distribution Account.

                  (C) [Reserved]

                  (D) The Servicer shall deposit or cause to be deposited in the
Distribution Account any cash Disposition Proceeds pursuant to Section 3.07. To
the extent the Servicer receives such amounts, it will deposit them into the
Distribution Account on the same Business Day as receipt thereof.

                  (3) Withdrawals From Distribution Account -- Payment Dates. On
each Payment Date, to the extent funds are available in the Distribution
Account, the Paying Agent (based on the information provided by the Servicer
contained in the Servicer's Remittance Report for such Payment Date) shall make
withdrawals therefrom for application in the following order of priority:

                  (i) to distribute on such Payment Date the following amounts
in the following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Payment
Dates and all amounts owing to the Indenture Trustee pursuant to Section 6.07 of
the Indenture and not paid by the Servicer or the Depositor up to an amount not
to exceed $25,000 per annum, (b) to the Custodian, an amount equal to the
Custodian Fee and all unpaid Custodian Fees from prior Payment Dates, (c) to the
Servicer, an amount equal to the Servicing Compensation and all unpaid Servicing
Compensation from prior Payment Dates (to the extent not retained from
collections or remitted to the Servicer pursuant to Section 5.01(c)) and (d) to
the Servicer, in trust for the Owner Trustee, an amount equal to the Owner
Trustee Fee and all unpaid Owner Trustee Fees from prior Payment Dates;

                  (ii) to distribute on such Payment Date, the Hedge Funding
Requirement to the appropriate Hedging Counterparties;

                  (iii) to the holders of the Notes pro rata, the sum of the
Interest Payment Amount for such Payment Date and the Interest Carry-Forward
Amount for the preceding Payment Date;

                  (iv) to the holders of the Notes pro rata, the
Overcollateralization Shortfall for such Payment Date; provided, however, that
if (a) a Rapid Amortization Trigger shall have occurred and not been Deemed
Cured or (b) an Event of Default under the Indenture

                                       52
<PAGE>

or Default shall have occurred, the holders of the Notes shall receive, in
respect of principal, all remaining amounts on deposit in the Distribution
Account;

                  (v) to the Note Agent, the Nonutilization Fee for such Payment
Date, together with any Nonutilization Fees unpaid from any prior Payment Dates;

                  (vi) to the appropriate Person, amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) and Due
Diligence Fees until such amounts are paid in full;

                  (vii) to the Transfer Obligation Account, all remaining
amounts until the balance therein equals the Transfer Obligation Target Amount;

                  (viii) to the Indenture Trustee all amounts owing to the
Indenture Trustee pursuant to Section 6.07 of the Indenture and not paid
pursuant to clause (i) above;

                  (ix) all Nonrecoverable Servicing Advances not previously
reimbursed; and

                  (x) to the holders of the Trust Certificates, subject to
Section 5.2(b) of the Trust Agreement, all amounts remaining therein; provided,
however, if the Owner Trustee has notified the Paying Agent that any amounts are
due and owing to it and remain unpaid, then first to the Owner Trustee such
amounts.

                  (4)   (i) If the Loan Originator or the Servicer, as
applicable, repurchases, purchases or substitutes a Loan pursuant to Section
2.05, 3.06, 3.08(a), 3.08(b) or 3.08(c), then the Noteholders and the Issuer
shall deem such date to be an additional Payment Date and the Issuer shall
provide written notice to the Indenture Trustee and the Paying Agent of such
additional Payment Date at least one Business Day prior to such Payment Date. On
such additional Payment Date, the Loan Originator or the Servicer, in
satisfaction of its obligations under 2.05, 3.06, 3.08(a) 3.08(b) or 3.08(c) and
in satisfaction of the obligations of the Issuer and the Paying Agent to
distribute such amounts to the Noteholders pursuant to Section 5.0l(c), shall
remit to the Noteholders, on behalf of the Issuer and the Paying Agent, an
amount equal to the Repurchase Prices and any Substitution Adjustments (as
applicable) to be paid by the Loan Originator or the Servicer by 12:00 p.m. New
York City time, as applicable, under such Section, on such Payment Date, and the
Note Principal Balance will be reduced accordingly. Such amounts shall be deemed
deposited into the Collection Account and the Distribution Account, as
applicable, and such amounts will be deemed distributed pursuant to the terms of
Section 5.01(c). Upon notice of an additional Payment Date to the Paying Agent
and the Indenture Trustee as provided above, the Paying Agent shall provide the
Loan Originator or the Servicer (as applicable) information necessary so that
remittances to the Noteholders pursuant to this clause (4)(i) may be made by the
Loan Originator or the Servicer, as applicable, in compliance with Section
5.02(a) hereof.

                        (ii) To the extent that there is deposited in the
Collection Account or the Distribution Account any amounts referenced in Section
5.01(b)(v) and 5.01(c)(2)(D), the Majority Noteholders and the Issuer may agree,
upon reasonable written notice to the Paying Agent and the Indenture Trustee, to
additional Payment Dates. The Issuer

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<PAGE>

and the Majority Noteholder shall give the Paying Agent and the Indenture
Trustee at least one (1) Business Day's written notice prior to such additional
Payment Date and such notice shall specify each amount in Section 5.01(c) to be
withdrawn from the Collection Account and Distribution Account on such day.

                        (iii) To the extent that there is deposited in the
Distribution Account any amounts referenced in Section 5.05(f), the Majority
Noteholders may, in their sole discretion, establish an additional Payment Date
by written notice delivered to the Paying Agent and the Indenture Trustee at
least one Business Day prior to such additional Payment Date. On such additional
Payment Date, the Paying Agent shall pay the sum of the Overcollateralization
Shortfall to the Noteholders in respect of principal on the Notes.

            Notwithstanding that the Notes have been paid in full, the Indenture
Trustee, the Paying Agent and the Servicer shall continue to maintain the
Distribution Account hereunder until this Agreement has been terminated.

            (d) [Reserved]

      Section 5.02 Payments to Securityholders.

            (a) All distributions made on the Notes on each Payment Date or
pursuant to Section 5.04(b) of the Indenture will be made on a pro rata basis
among the Noteholders of record of the Notes on the next preceding Record Date
based on the Percentage Interest represented by their respective Notes, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes having a Percentage Interest (as defined in the Indenture) of at
least 20% and shall have so notified the Paying Agent and the Indenture Trustee
5 Business Days prior to the related Record Date, and otherwise by check mailed
to the address of such Noteholder appearing in the Notes Register. The final
distribution on each Note will be made in like manner, but only upon presentment
and surrender of such Note at the location specified in the notice to
Noteholders of such final distribution.

            (b) All distributions made on the Trust Certificates on each Payment
Date or pursuant to Section 5.04(b) of the Indenture will be made in accordance
with the Percentage Interest among the holders of the Trust Certificates of
record on the next preceding Record Date based on their Percentage Interests (as
defined in the Trust Agreement) on the date of distribution, without preference
or priority of any kind, and, except as otherwise provided in the next
succeeding sentence, shall be made by wire transfer of immediately available
funds to the account of each such holder, if such holder shall own of record a
Trust Certificate in an original denomination aggregating at least 25% of the
Percentage Interests and shall have so notified the Paying Agent and the
Indenture Trustee 5 Business Days prior to the related Record Date, and
otherwise by check mailed to the address of such Certificateholder appearing in
the Certificate Register. The final distribution on each Trust Certificate will
be made in like manner, but only upon presentment and surrender of such Trust
Certificate at the location specified in the notice to holders of the Trust
Certificates of such final distribution. Any amount distributed to the holders
of the Trust Certificates on any Payment Date shall not be subject to any claim
or interest of the

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<PAGE>

Noteholders. In the event that at any time there shall be more than one
Certificateholder, the Indenture Trustee shall be entitled to reasonable
additional compensation from the Servicer for any increase in its obligations
hereunder.

      Section 5.03 Trust Accounts; Trust Account Property.

            (a) Control of Trust Accounts. Each of the Trust Accounts
established hereunder has been pledged by the issuer to the Indenture Trustee
under the Indenture and shall be subject to the lien of the Indenture. Amounts
distributed from each Trust Account in accordance with the terms of this
Agreement shall be released for the benefit of the Securityholders from the
Trust Estate upon such distribution thereunder or hereunder. The Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts and in all proceeds thereof
(including all income thereon) and all such funds, investments, proceeds and
income shall be part of the Trust Account Property and the Trust Estate. If, at
any time, any Trust Account ceases to be an Eligible Account, the Indenture
Trustee shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, with the prior written consent of the Majority Noteholders) (i)
establish a new Trust Account as an Eligible Account, (ii) terminate the
ineligible Trust Account, and (iii) transfer any cash and investments from such
ineligible Trust Account to such new Trust Account.

            With respect to the Trust Accounts, the Issuer and the Indenture
Trustee agree, that each such Trust Account shall be subject to the "control"
(in accordance with Section 9-104 of the UCC) of the Indenture Trustee for the
benefit of the Noteholders, and, except as may be consented to in writing by the
Majority Noteholders or provided in the related Blocked Account Agreement, the
Indenture Trustee shall have sole signature and withdrawal authority with
respect thereto.

            The Servicer (unless it is also the Paying Agent) shall not be
entitled to make any withdrawals or payments from the Trust Accounts.

            (b) (1) Investment of Funds. Funds held in the Collection Account,
the Distribution Account and the Transfer Obligation Account may be invested (to
the extent practicable and consistent with any requirements of the Code) in
Permitted Investments, as directed by the Servicer prior to the occurrence of an
Event of Default and by the Majority Noteholders thereafter, in writing or
facsimile transmission confirmed in writing by the Servicer or Majority
Noteholders, as applicable. In the event the Indenture Trustee has not received
such written direction, such Funds shall be invested in any Permitted Investment
described in clause (i) of the definition of Permitted Investments. In any case,
funds in the Collection Account, the Distribution Account and the Transfer
Obligation Account must be available for withdrawal without penalty, and any
Permitted Investments must mature or otherwise be available for withdrawal, one
Business Day prior to the next Payment Date and shall not be sold or disposed of
prior to its maturity subject to Subsection (b)(2) of this Section. All interest
and any other investment earnings on amounts or investments held in the
Collection Account, the Distribution Account and the Transfer Obligation Account
shall be paid to the Servicer immediately upon receipt by the Indenture Trustee.
All Permitted Investments in which funds in the Collection Account, the
Distribution Account or the Transfer Obligation Account are invested must be
held

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<PAGE>

by or registered in the name of "Wells Fargo Bank Minnesota, National
Association, as Indenture Trustee, in trust for the Option One Owner Trust
2003-4 Mortgage-Backed Notes."

                  (2) Insufficiency and Losses in Trust Accounts. If any amounts
are needed for disbursement from the Collection Account, the Distribution
Account or the Transfer Obligation Account held by or on behalf of the Indenture
Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in the Collection
Account, the Distribution Account or the Transfer Obligation Account, as the
case may be. The Indenture Trustee shall not be liable for any investment loss
or other charge resulting therefrom, unless such loss or charge is caused by the
failure of the Indenture Trustee to perform in accordance with written
directions provided pursuant to this Section 5.03.

            If any losses are realized in connection with any investment in the
Collection Account, the Distribution Account or the Transfer Obligation Account
pursuant to this Agreement during a period in which the Servicer has the right
to direct investments pursuant to Section 5.03(b), then the Servicer shall
deposit the amount of such losses (to the extent not offset by income from other
investments in the Collection Account, the Distribution Account or the Transfer
Obligation Account, as the case may be) into the Collection Account, the
Distribution Account or the Transfer Obligation Account, as the case may be,
immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in the Collection Account, the Distribution
Account and the Transfer Obligation Account shall be taxed to the Issuer and for
federal and state income tax purposes the Issuer shall be deemed to be the owner
of the Collection Account, the Distribution Account and/or the Transfer
Obligation Account, as the case may be.

            (c) Subject to Section 6.01 of the Indenture, the Indenture Trustee
shall not in any way be held liable by reason of any insufficiency in any Trust
Account held by the Indenture Trustee resulting from any investment loss on any
Permitted Investment included therein.

            (d) With respect to the Trust Account Property, the Indenture
Trustee acknowledges and agrees that:

                  (1) any Trust Account Property that is held in deposit
accounts shall be held solely in the Eligible Accounts, subject to the last
sentence of Subsection (a) of this Section 5.03; and each such Eligible Account
shall be subject to the "control" (in accordance with Section 9-104 of the UCC)
of the Indenture Trustee as provided in the related Blocked Account Agreement;
and, without limitation on the foregoing, the Indenture Trustee shall have sole
signature authority with respect thereto except to the extent otherwise provided
in the related Blocked Account Agreement;

                  (2) any Trust Account Property that constitutes Physical
Property shall be delivered to the Indenture Trustee in accordance with
paragraphs (a) and (b) of the definition of "Delivery" in Section 1.01 hereof
and shall be held, pending maturity or disposition, solely by the Indenture
Trustee or a securities intermediary (as such term is defined in Section
8-102(a)(14) of the UCC) acting solely for the Indenture Trustee;

                                       56
<PAGE>

                  (3) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (c) of the
definition of "Delivery" in Section 1.01 hereof and shall be maintained by the
Indenture Trustee, pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such paragraph; and

                  (4) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause (3)
above shall be delivered to the Indenture Trustee in accordance with paragraph
(d) of the definition of "Delivery" in Section 1.01 hereof and shall be
maintained by the Indenture Trustee, pending maturity or disposition, through
continued registration of the Indenture Trustee's (or its nominee's) ownership
of such security.

      Section 5.04 Advance Account.

            (a) The Servicer shall cause to be established and maintained in its
name, an Advance Account (the "Advance Account"), which need not be a segregated
account. The Advance Account shall be maintained with any financial institution
the Servicer elects.

            (b) Deposits and Withdrawals. Amounts in respect of the transfer of
Additional Note Principal Balances and Loans shall be deposited in and withdrawn
from the Advance Account as provided in Sections 2.01 (c) and 2.06 hereof and
Section 3.01 of the Note Purchase Agreement.

      Section 5.05 Transfer Obligation Account.

            (a) The Servicer, for the benefit of the Noteholders, shall cause to
be established and maintained in the name of the Indenture Trustee a Transfer
Obligation Account (the 'Transfer Obligation Account"), which shall be a
separate Eligible Account and may be interest-bearing, entitled "Option One
Owner Trust 2003-4 Transfer Obligation Account, Wells Fargo Bank Minnesota,
National Association, as Indenture Trustee, in trust for the Option One Owner
Trust 2003-4 Mortgage-Backed Notes." The Indenture Trustee shall have no
monitoring or calculation obligation with respect to withdrawals from the
Transfer Obligation Account. Amounts in the Transfer Obligation Account shall be
invested in accordance with Section 5.03.

            (b) In accordance with Section 5.06, the Loan Originator shall
deposit into the Transfer Obligation Account any amounts as may be required
thereby.

            (c) On each Payment Date, the Paying Agent will deposit in the
Transfer Obligation Account any amounts required to be deposited therein
pursuant to Section 5.01(c)(3)(vii).

            (d) On the date of each Disposition, the Paying Agent shall withdraw
from the Transfer Obligation Account such amount on deposit therein in respect
of the payment of Transfer Obligations as may be requested by the Disposition
Agent in writing to effect such Disposition.

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<PAGE>

            (e) On each Payment Date, the Paying Agent shall withdraw from the
Transfer Obligation Account and deposit into the Distribution Account on such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account and (y) the Interest Carry-Forward Amount as of such date.

            (f) If with respect to any Business Day there exists an
Overcollateralization Shortfall, the Paying Agent, upon the written direction of
the Note Agent, shall withdraw from the Transfer Obligation Account and deposit
into the Distribution Account on such Business Day the lesser of (x) the amount
then on deposit in the Transfer Obligation Account and (y) the amount of such
Overcollateralization Shortfall as of such date.

            (g) If with respect to any Payment Date there shall exist a Hedge
Funding Requirement, the Paying Agent, upon the written direction of the
Servicer or the Note Agent, shall withdraw from the Transfer Obligation Account
and deposit into the Distribution Account on the Business Day prior to such
Payment Date the lesser of (x) the amount then on deposit in the Transfer
Obligation Account (after making all other required withdrawals therefrom with
respect to such Payment Date) and (y) the amount of such Hedge Funding
Requirement as of such date.

            (h) In the event of the occurrence of an Event of Default under the
Indenture, the Paying Agent shall withdraw all remaining funds from the Transfer
Obligation Account and apply such funds in satisfaction of the Notes as provided
in Section 5.04(b) of the Indenture.

            (i) The Paying Agent shall return to the Loan Originator all amounts
on deposit in the Transfer Obligation Account (after making all other
withdrawals pursuant to this Section 5.05) until the Majority Noteholders
provide written notice to the Indenture Trustee (with a copy to the Loan
Originator and the Servicer) of the occurrence of a default or event of default
(however defined) under any Basic Document with respect to the Issuer, the
Depositor, the Loan Originator or any of their Affiliates and upon the date of
the termination of this Agreement pursuant to Article X, the Paying Agent shall
withdraw any remaining amounts from the Transfer Obligation Account and remit
all such amounts to the Loan Originator.

      Section 5.06 Transfer Obligation.

            (a) In consideration of the transactions contemplated by the Basic
Documents, the Loan Originator agrees and covenants with the Depositor that:

                  (i) In connection with each Disposition it shall fund, or
cause to be funded, reserve funds, pay credit enhancer fees, pay, or cause to be
paid, underwriting fees, fund any difference between the cash Disposition
Proceeds and the aggregate Note Principal Balance at the time of such
Disposition, and make, or cause to be made, such other payments as may be, in
the reasonable opinion of the Disposition Agent, commercially reasonably
necessary to effect Dispositions, in each case to the extent that Disposition
Proceeds are insufficient to pay such amounts;

                  (ii) In connection with Hedging Instruments, on the Business
Day prior to each Payment Date, it shall deliver to the Servicer for deposit
into the Transfer Obligation Account any Hedge Funding Requirement (to the
extent amounts available on the

                                       58
<PAGE>

related Payment Date pursuant to Section 5.01 are insufficient to make such
payment), when, as and if due to any Hedging Counterparty;

                  (iii) if any Interest Carry-Forward Amount shall occur, it
shall deposit into the Transfer Obligation Account any such Interest
Carry-Forward Amount on or before the Business Day preceding such related
Payment Date;

                  (iv) If on any Business Day there exists an
Overcollateralization Shortfall, upon the written direction of the Note Agent,
it shall on such Business Day deposit into the Transfer Obligation Account the
full amount of the Overcollateralization Shortfall as of such date, provided,
that in the event that notice of such Overcollateralization Shortfall is
provided to the Loan Originator after 3:00 p.m. New York City time, the Loan
Originator shall make such deposit on the following Business Day; and

                  (v) Notwithstanding anything to the contrary herein, in the
event of the occurrence of an Event of Default under the Indenture, the Loan
Originator shall promptly deposit into the Transfer Obligation Account the
entire amount of the Unfunded Transfer Obligation;

provided, that notwithstanding anything to the contrary contained herein, the
Loan Originator's cumulative payments under or in respect of the Transfer
Obligations (after subtracting therefrom any amounts returned to the Loan
Originator pursuant to Section 5.05(i)) together with the Servicer's payments in
respect of any Servicer Puts shall not in the aggregate exceed the Unfunded
Transfer Obligation.

            (b) The Loan Originator agrees that the Noteholders, as ultimate
assignee of the rights of the Depositor under this Agreement and the other Basic
Documents, may enforce the rights of the Depositor directly against the Loan
Originator.

                                   ARTICLE VI

              STATEMENTS AND REPORTS; SPECIFICATION OF TAX MATTERS

      Section 6.01 Statements.

            (a) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall deliver to the Indenture Trustee and the Note Agent by
electronic transmission, the receipt and legibility of which shall be confirmed
by telephone, and with hard copy thereof to be delivered no later than one (1)
Business Day after such Remittance Date, the Servicer's Remittance Report,
setting forth the date of such Report (day, month and year), the name of the
Issuer (i.e., "Option One Owner Trust 2003-4"), and the date of this Agreement,
all in substantially the form set out in Exhibit B hereto. Furthermore, on each
Remittance Date, the Servicer shall deliver to the Indenture Trustee and the
Note Agent a data file providing, with respect to each Loan in the Loan Pool as
of the last day of the related Remittance Period (i) if such Loan is an ARM, the
current Loan Interest Rate; (ii) the Principal Balance with respect to such
Loan; (iii) the date of the last Monthly Payment paid in full; and (iv) such
other information as may be reasonably requested by the Note Agent and the
Indenture Trustee. In addition, no later than 12:00 noon (New York City time) on
the 15th day of each calendar month (or if such

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<PAGE>

day is not a Business Day, the preceding Business Day), the Custodian shall
prepare and provide to the Servicer and the Indenture Trustee by facsimile, the
Custodian Fee Notice for the Payment Date falling in such calendar month.

            (b) No later than 12 noon (New York City time) on each Remittance
Date, the Servicer shall prepare (or cause to be prepared) and provide to the
Indenture Trustee electronically or via fax, receipt confirmed by telephone, the
Note Agent and each Noteholder, a statement (the "Payment Statement"), stating
each date and amount of a purchase of Additional Note Principal Balance (day,
month and year), the name of the Issuer (i.e., "Option One Owner Trust 2003-4"),
the date of this Agreement and the following information:

                  (1) the aggregate amount of collections in respect of
principal of the Loans received by the Servicer during the preceding Remittance
Period;

                  (2) the aggregate amount of collections in respect of interest
on the Loans received by the Servicer during the preceding Remittance Period;

                  (3) all Mortgage Insurance Proceeds received by the Servicer
during the preceding Remittance Period and not required to be applied to
restoration or repair of the related Mortgaged Property or returned to the
Borrower under applicable law or pursuant to the terms of the applicable
Mortgage Insurance Policy;

                  (4) all Net Liquidation Proceeds deposited by the Servicer
into the Collection Account during the preceding Remittance Period;

                  (5) all Released Mortgaged Property Proceeds deposited by the
Servicer into the Collection Account during the preceding Remittance Period;

                  (6) the aggregate amount of all Servicing Advances made by the
Servicer during the preceding Remittance Period;

                  (7) the aggregate of all amounts deposited into the
Distribution Account in respect of the repurchase of Unqualified Loans and the
repurchase of Loans pursuant to Section 2.05 hereof during the preceding
Remittance Period;

                  (8) the aggregate Principal Balance of all Loans for which a
Servicer Call was exercised during the preceding Remittance Period;

                  (9) the aggregate Principal Balance of all Loans for which a
Servicer Put was exercised during the preceding Remittance Period;

                  (10) the aggregate amount of all payments received under
Hedging Instruments during the preceding Remittance Period;

                  (11) the aggregate amount of all withdrawals from the
Distribution Account pursuant to Section 5.01(c)(1)(i) hereof during the
preceding Remittance Period;

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                  (12) the aggregate amount of cash Disposition Proceeds
received during the preceding Remittance Period;

                  (13) withdrawals from the Collection Account in respect of the
Servicing Advance Reimbursement Amount with respect to the related Payment Date;

                  (14) [Reserved];

                  (15) the number and aggregate Principal Balance of all Loans
that are (i) 30-59 days Delinquent, (ii) 60- 89 days Delinquent, (iii) 90 or
more days Delinquent as of the end of the related Remittance Period;

                  (16) the aggregate amount of Liquidated Loan Losses incurred
(i) during the preceding Remittance Period, and (ii) during the preceding three
Remittance Periods;

                  (17) the aggregate of the Principal Balances of all Loans in
the Loan Pool as of the end of the related Remittance Period;

                  (18) the aggregate amount of all deposits into the
Distribution Account from the Transfer Obligation Account pursuant to Sections
5.05(e), 5.05(f), 5.05(g), and 5.05(h) on the related Payment Date;

                  (19) the aggregate amount of distributions in respect of
Servicing Compensation to the Servicer, and unpaid Servicing Compensation from
prior Payment Dates for the related Payment Date;

                  (20) the aggregate amount of distributions in respect of
Indenture Trustee Fees and unpaid Indenture Trustee Fees from prior Payment
Dates for the related Payment Date;

                  (21) the aggregate amount of distributions in respect of the
Custodian Fee and unpaid Custodian Fees from prior Payment Dates for the related
Payment Date;

                  (22) the aggregate amount of distributions in respect of the
Owner Trustee Fees and unpaid Owner Trustee Fees from prior Payment Dates and
for the related Payment Date;

                  (23) the Unfunded Transfer Obligation and
Overcollateralization Shortfall on such Payment Date for the related Payment
Date;

                  (24) the aggregate amount of distributions to the Transfer
Obligation Account for the related Payment Date;

                  (25) the aggregate amount of distributions in respect of
Trust/Depositor Indemnities for the related Payment Date;

                  (26) the aggregate amount of distributions to the holders of
the Trust Certificates for the related Payment Date;

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                  (27) the Note Principal Balance of the Notes as of the last
day of the related Remittance Period (without taking into account any Additional
Note Principal Balance between the last day of such Remittance Period and the
related Payment Date) before and after giving effect to distributions made to
the holders of the Notes for such Payment Date;

                  (28) the Pool Principal Balance as of the end of the preceding
Remittance Period; and

                  (29) whether a Performance Trigger or a Rapid Amortization
Trigger shall exist with respect to such Payment Date.

Such Payment Statement shall also be provided on the Remittance Date to the Note
Agent and Indenture Trustee in the form of a data file in a form mutually agreed
to by and between the Note Agent, the Indenture Trustee and the Servicer. The
Indenture Trustee shall have no duty to monitor the occurrence of a Performance
Trigger, Rapid Amortization Trigger or any events resulting in withdrawals from
the Transfer Obligation Account.

      Section 6.02 Specification of Certain Tax Matters.

      The Paying Agent shall comply with all requirements of the Code and
applicable state and local law with respect to the withholding from any
distributions made to any Securityholder of any applicable withholding taxes
imposed thereon and with respect to any applicable reporting requirements in
connection therewith, giving due effect to any applicable exemptions from such
withholding and effective certifications or forms provided by the recipient. Any
amounts withheld pursuant to this Section 6.02 shall be deemed to have been
distributed to the Securityholders, as the case may be, for all purposes of this
Agreement. The Indenture Trustee shall have no responsibility for preparing or
filing any tax returns.

      Section 6.03 Valuation of Loans, Hedge Value and Retained Securities
Value;

                  Market Value Agent.

            (a) The Note Agent hereby irrevocably appoints, and the Issuer
hereby consents to the appointment of, the Market Value Agent as agent on behalf
of the Noteholders to determine the Market Value of each Loan, the Hedge Value
of each Hedging Instrument and the Retained Securities Value of all Retained
Securities.

            (b) Except as otherwise set forth in Section 3.07, the Market Value
Agent shall determine the Market Value of each Loan, for the purposes of the
Basic Documents, in its sole judgment. In determining the Market Value of each
Loan, the Market Value Agent may consider any information that it may deem
relevant and shall base such determination primarily on the lesser of its
estimate of the projected proceeds from such Loan's inclusion in (i) a
Securitization (inclusive of the projected Retained Securities Value of any
Retained Securities to be issued in connection with such Securitization) and
(ii) a Whole Loan Sale, in each case net of such Loan's ratable share of all
costs and fees associated with such Disposition, including, without limitation,
any costs of issuance, sale, underwriting and funding reserve accounts. The
Market Value Agent's determination, in its sole judgment, of Market Value shall
be conclusive

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and binding upon the parties hereto, absent manifest error (including without
limitation, any error contemplated in Section 2.08).

            (c) On each Business Day the Market Value Agent shall determine in
its sole judgment the Hedge Value of each Hedging Instrument as of such Business
Day. In making such determination the Market Value Agent may rely exclusively on
quotations provided by the Hedging Counterparty, by leading dealers in
instruments similar to such Hedging Instrument, which leading dealers may
include the Market Value Agent and its Affiliates and such other sources of
information as the Market Value Agent may deem appropriate.

            (d) On each Business Day, the Market Value Agent shall determine in
its sole judgment the Retained Securities Value of the Retained Securities, if
any, expected to be issued pursuant to such Securitization as of the closing
date of such Securitization. In making such determination the Market Value Agent
may rely exclusively on quotations provided by leading dealers in instruments
similar to such Retained Securities, which leading dealers may include the
Market Value Agent and its Affiliates and such other sources of information as
the Market Value Agent may deem appropriate.

                                   ARTICLE VII

                          HEDGING; FINANCIAL COVENANTS

      Section 7.01 Hedging Instruments.

            (a) On each Transfer Date, the Trust shall enter into such Hedging
Instruments as the Market Value Agent, on behalf of the Majority Noteholders,
shall determine are necessary in order to hedge the interest rate risk with
respect to the Collateral Value of the Loans being purchased on such Transfer
Date. The Market Value Agent shall determine, in its sole discretion, whether
any Hedging Instrument conforms to the requirements of Section 7.0l(b), (c) and
(d).

            (b) Each Hedging Instrument shall expressly provide that in the
event of a Disposition or other removal of the Loan from the Trust, such portion
of the Hedging Instrument shall terminate as the Disposition Agent deems
appropriate to facilitate the hedging of the risks specified in Section 7.01(a).
In the event that the Hedging Instrument is not otherwise terminated, it shall
contain provisions that allow the position of the Trust to be assumed by an
Affiliate of the Trust upon the liquidation of the Trust. The terms of the
assignment documentation and the credit quality of the successor to the Trust
shall be subject to the Hedging Counterparty's approval.

            (c) Any Hedging Instrument that provides for any payment obligation
on the part of the Issuer must (i) be without recourse to the assets of the
Issuer, (ii) contain a non-petition covenant provision in the form of Section
11.13, (iii) limit payment dates thereunder to Payment Dates and (iv) contain a
provision limiting any cash payments due on any day under such Hedging
Instrument solely to funds available therefor in the Collection Account on such
day pursuant to Section 5.01(c)(3)(ii) hereof and funds available therefor in
the Transfer Obligation Account.

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            (d) Each Hedging Instrument must (i) provide for the direct payment
of any amounts thereunder to the Collection Account pursuant to Section
5.01(b)(viii), (ii) contain an assignment of all of the Issuer's rights (but
none of its obligations) under such Hedging Instrument to the Indenture Trustee
and shall include an express consent to the Hedging Counterparty to such
assignment, (iii) provide that in the event of the occurrence of an Event of
Default, such Hedging Instrument shall terminate upon the direction of the
Majority Noteholders, (iv) prohibit the Hedging Counterparty from "setting-off"
or "netting" other obligations of the Issuer or its Affiliates against such
Hedging Counterparty's payment obligations thereunder, (v) provide that the
appropriate portion of the Hedging Instrument will terminate upon the removal of
the related Loans from the Trust Estate and (vi) have economic terms that are
fixed and not subject to alteration after the date of assumption or execution.

            (e) If agreed to by the Majority Noteholders, the Issuer may pledge
its assets in order to secure its obligations in respect of Hedge Funding
Requirements, provided that such right shall be limited solely to Hedging
Instruments for which an Affiliate of the Note Agent is a Hedging Counterparty.

            (f) The aggregate notional amount of all Hedging Instruments shall
not exceed the Note Principal Balance as of the date on which each Hedging
Instrument is entered into by the Issuer and a Hedging Counterparty.

      Section 7.02 Financial Covenants.

            (a) Each of the Loan Originator and the Servicer shall maintain a
minimum Tangible Net Worth of $425 million as of any day.

            (b) Neither the Loan Originator nor the Servicer may exceed a
maximum leverage ratio (the ratio of total liabilities (exclusive of
non-recourse debt), determined in accordance with GAAP, to its Tangible Net
Worth) of 6.0x as of any day.

            (c) Neither the Loan Originator nor the Servicer may exceed a
maximum non-warehouse leverage ratio (the ratio of (i) the sum of (A) all funded
debt (excluding debt from H&R Block, Inc. or any of its Affiliates and all
non-recourse debt) less (B) 100% of its mortgage loan inventory held for sale
less (C) 80% of servicing advance receivables (determined and valued in
accordance with GAAP) to (ii) Tangible Net Worth) of 0.50x at any time.

            (d) Each of the Loan Originator and the Servicer shall maintain a
minimum liquidity facility (defined as a committed, unsecured, non-amortizing
liquidity facility from H&R Block, Inc. not to mature (scheduled or accelerated)
prior to the Maturity Date) in an amount no less than $150 million. Such
facility from H&R Block, Inc. cannot contain covenants or termination events
more restrictive than the covenants or termination events contained in the Basic
Documents.

            (e) Each of the Loan Originator and the Servicer shall maintain a
committed warehouse credit facility, with a maturity date (scheduled or
accelerated) not earlier than the Maturity Date, in an amount not less than the
Maximum Note Principal Balance from a third-party entity that is not an
Affiliate of the Note Agent, the Loan Originator or the Servicer.

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                                  ARTICLE VIII

                                  THE SERVICER

      Section 8.01 Indemnification; Third Party Claims.

            (a) The Servicer shall indemnify the Loan Originator, the Owner
Trustee, the Trust, the Depositor, the Indenture Trustee and the Noteholders,
their respective officers, directors, employees, agents and "control persons,"
as such term is used under the Act and under the Securities Exchange Act of 1934
as amended (each a "Servicer Indemnified Party") and hold harmless each of them
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and other costs and expenses
resulting from any claim, demand, defense or assertion based on or grounded
upon, or resulting from, a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Loans in
compliance with the terms of this Agreement except to the extent such loss
arises out of such Servicer Indemnified Party's gross negligence or willful
misconduct; provided, however, that if the Servicer is not liable pursuant to
the provisions of Section 8.01(b) hereof for its failure to perform its duties
and service the Loans in compliance with the terms of this Agreement, then the
provisions of this Section 8.01 shall have no force and effect with respect to
such failure. In addition to the foregoing, the Servicer shall indemnify the
Note Agent and hold it harmless against any amounts the Notes Agent is obligated
to pay pursuant to any Blocked Account Agreement to the financial institution at
which either of the Trust Accounts is maintained to the extent such amounts are
incurred or relate to a period following the delivery of a Termination Notice
(as defined under such Blocked Account Agreement) under such Blocked Account
Agreement.

            (b) None of the Loan Originator, the Depositor or the Servicer or
any of their respective Affiliates, directors, officers, employees or agents
shall be under any liability to the Owner Trustee, the Issuer, the Indenture
Trustee or the Securityholders for any action taken, or for refraining from the
taking of any action, in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Loan
Originator, the Depositor, the Servicer or any of their respective Affiliates,
directors, officers, employees, agents against the remedies provided herein for
the breach of any warranties, representations or covenants made herein, or
against any expense or liability specifically required to be borne by such party
without right of reimbursement pursuant to the terms hereof, or against any
expense or liability which would otherwise be imposed by reason of misfeasance,
bad faith or negligence in the performance of the respective duties of the
Servicer, the Depositor or the Loan Originator, as the case may be. The Loan
Originator, the Depositor, the Servicer and any of their respective Affiliates,
directors, officers, employees, agents may rely in good faith on any document of
any kind which, prima facie, is properly executed and submitted by any Person
respecting any matters arising hereunder.

            (c) The Loan Originator agrees to indemnify and hold harmless the
Depositor and the Noteholders, as the ultimate assignees from the Depositor
(each an "Originator Indemnified Party," together with the Servicer Indemnified
Parties, the "Indemnified Parties"), from and against any loss, liability,
expense, damage, claim or injury arising out of or based on

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<PAGE>

(i) any breach of any representation, warranty or covenant of the Loan
Originator, the Servicer or their Affiliates, in any Basic Document, including,
without limitation, the origination or prior servicing of the Loans by reason of
any acts, omissions, or alleged acts or omissions arising out of activities of
the Loan Originator, the Servicer or their Affiliates, and (ii) any untrue
statement by the Loan Originator, the Servicer or its Affiliates of any material
fact or any such Person's failure to state a material fact necessary to make
such statements not misleading with respect to any such Person's statements
contained in any Basic Document, including, without limitation, any Officer's
Certificate, statement, report or other document or information prepared by any
such Person and furnished or to be furnished by it pursuant to or in connection
with the transactions contemplated thereby and not corrected prior to completion
of the relevant transaction including, without limitation, such written
information as may have been and may be furnished in connection with any due
diligence investigation with respect to the Loans or any such Person's business,
operations or financial condition, including reasonable attorneys' fees and
other costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Loan Originator shall
not indemnify an Originator Indemnified Party to the extent such loss,
liability, expense, damage or injury is due to either an Originator Indemnified
Party's willful misfeasance, bad faith or negligence or by reason of an
Originator Indemnified Party's reckless disregard of its obligations hereunder;
provided, further, that the Loan Originator shall not be so required to
indemnify an Originator Indemnified Party or to otherwise be liable to an
Originator Indemnified Party for any losses in respect of the performance of the
Loans, the creditworthiness of the Borrowers under the Loans, changes in the
market value of the Loans or other similar investment risks associated with the
Loans arising from a breach of any representation or warranty set forth in
Exhibit E hereto, a remedy for the breach of which is provided in Section 3.06
hereof. The provisions of this indemnity shall run directly to and be
enforceable by an Originator Indemnified Party subject to the limitations
hereof.

            (d) With respect to a claim subject to indemnity hereunder made by
any Person against an Indemnified Party (a "Third Party Claim"), such
Indemnified Party shall notify the related indemnifying parties (each an
"Indemnifying Party") in writing of the Third Party Claim within a reasonable
time after receipt by such Indemnified Party of written notice of the Third
Party Claim unless the Indemnifying Parties shall have previously obtained
actual knowledge thereof. Thereafter, the Indemnified Party shall deliver to the
Indemnifying Parties, within a reasonable time after the Indemnified Party's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim. No failure
to give such notice or deliver such documents shall effect the rights to
indemnity hereunder. Each Indemnifying Party shall promptly notify the Indenture
Trustee and the Indemnified Party (if other than the Indenture Trustee) of any
claim of which it has been notified and shall promptly notify the Indenture
Trustee and the Indemnified Party (if applicable) of its intended course of
action with respect to any claim.

            (e) If a Third Party Claim is made against an Indemnified Party,
while maintaining control over its own defense, the Indemnified Party shall
cooperate and consult fully with the Indemnifying Party in preparing such
defense, and the Indemnified Party may defend the same in such manner as it may
deem appropriate, including settling such claim or litigation after giving
notice to the Indemnifying Party of such terms and the Indemnifying Party will
promptly reimburse the Indemnified Party upon written request; provided,
however, that the

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Indemnified Party may not settle any claim or litigation without the consent of
the Indemnifying Party.

      Section 8.02 Merger or Consolidation of the Servicer.

      The Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its qualification to
do business as a foreign corporation and maintain such other licenses and
permits in each jurisdiction necessary to protect the validity and
enforceability of each Basic Document to which it is a party and each of the
Loans and to perform its duties under each Basic Document to which it is a
party; provided, however, that the Servicer may merge or consolidate with any
other corporation upon the satisfaction of the conditions set forth in the
following paragraph.

      Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee and the issuer.

      Section 8.03 Limitation on Liability of the Servicer and Others.

      The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 8.01
hereof, the Servicer shall have no obligation to appear with respect to,
prosecute or defend any legal action which is not incidental to the Servicer's
duty to service the Loans in accordance with this Agreement.

      Section 8.04 Servicer Not to Resign; Assignment.

      The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Majority Noteholders or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination pursuant to clause (b) of the preceding
sentence permitting the resignation of the Servicer shall be evidenced by an
Independent opinion of counsel to such effect delivered (at the expense of the
Servicer) to the Indenture Trustee and the Majority Noteholders. No resignation
of the Servicer shall become effective until a successor servicer, appointed
pursuant to the provisions of Section 9.02 hereof shall have assumed the
Servicer's responsibilities, duties, liabilities (other than those liabilities
arising prior to the appointment of such successor) and obligations under this
Agreement.

      Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.

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      The Servicer agrees to cooperate with any successor Servicer in effecting
the transfer of the Servicer's servicing responsibilities and rights hereunder
pursuant to the first paragraph of this Section 8.04, including, without
limitation, the transfer to such successor of all relevant records and documents
(including any Loan Files in the possession of the Servicer) and all amounts
received with respect to the Loans and not otherwise permitted to be retained by
the Servicer pursuant to this Agreement. In addition, the Servicer, at its sole
cost and expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Loan Files in its possession
and do or accomplish all other acts necessary or appropriate to effect such
termination and transfer of servicing responsibilities.

      Section 8.05 Relationship of Servicer to Issuer and the Indenture Trustee.

      The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Issuer, the Owner Trustee and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the issuer, the Owner Trustee or the Indenture Trustee.

      Section 8.06 Servicer May Own Securities.

      Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein; provided, however,
that at any time that Option One or any of its Affiliates is the Servicer,
neither the Servicer nor any of its Affiliates (other than an Affiliate which is
a corporation whose purpose is limited to holding securities and related
activities and which cannot incur recourse debt) may be a Noteholder. Securities
so owned by or pledged to the Servicer or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Securities; provided,
however, that any Securities owned by the Servicer or any Affiliate thereof,
during the time such Securities are owned by them, shall be without voting
rights for any purpose set forth in this Agreement unless the Servicer or such
Affiliate owns all outstanding Securities of the related class. The Servicer
shall notify the Indenture Trustee promptly after it or any of its Affiliates
becomes the owner or pledgee of a Security.

      Section 8.07 Indemnification of the Indenture Trustee and Note Agent.

      The Servicer agrees to indemnify the Indenture Trustee and its employees,
officers, directors and agents, and reimburse its reasonable out-of-pocket
expenses in accordance with Section 6.07 of the Indenture as if it was a
signatory thereto. The Servicer agrees to indemnify the Note Agent in accordance
with Section 9.01 of the Note Purchase Agreement as if it were signatory
thereto.

                                   ARTICLE IX

                           SERVICER EVENTS OF DEFAULT

      Section 9.01 Servicer Events of Default.

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            (a)   In case one or more of the following Servicer Events of
Default shall occur and be continuing (and shall not have been waived by the
majority Noteholders pursuant to Section 9.03), that is to say:

                  (1) any failure by Servicer to deposit into the Collection
Account or the Distribution Account amounts required to be deposited thereto or
any failure by Servicer to make any of the required payments therefrom; or

                  (2) any failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements on the part of
the Servicer, contained in any Basic Document to which it is a party, which
continues unremedied for a period of 30 days (or, in the case of payment of
insurance premiums, for a period of 15 days) after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Servicer by any other party hereto or to the Servicer (with copy to each
other party hereto), by Holders of 25% of the Percentage Interests of the Notes
or the Trust Certificates; or

                  (3) any breach on the part of the Servicer in any material
respect of any representation or warranty contained in any Basic Document to
which it is a party which continues unremedied for a period of 30 days after the
date on which notice of such breach, requiring the same to be remedied, shall
have been given to the Servicer by any other party hereto or to the Servicer
(with copy to each other party hereto), by the Note Agent or Holders of 25% of
the Percentage Interests (as defined in the Indenture) of the Notes; or

                  (4) there shall have been commenced before a court or agency
or supervisory authority having jurisdiction in the premises an involuntary
proceeding against the Servicer under any present or future federal or state
bankruptcy, insolvency or similar law for the appointment of a conservator,
receiver, liquidator, trustee or similar official in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, which action
shall not have been dismissed for a period of 60 days; or

                  (5) the Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to it or of or relating to all
or substantially all of its property; or

                  (6) the Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable bankruptcy, insolvency or reorganization statute, make an assignment
for the benefit of its creditors, voluntarily suspend payment of its
obligations, or take any corporate action in furtherance of the foregoing; or

                  (7) Reserved; or

                  (8) the Servicer or the Loan Originator fails to comply with
any of its financial covenants set forth in Section 7.02; or

                  (9) a Change of Control of the Servicer; or

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                  (10) so long as the Servicer or the Loan Originator is an
Affiliate of either of the Depositor or the Issuer and any "event of default' by
any such party occurs under any of the Basic Documents.

            (b)   Then, and in each and every such case, so long as a Servicer
Event of Default shall not have been remedied, the Indenture Trustee or the
Majority Noteholders, by notice in writing to the Servicer may, in addition to
whatever rights such Person may have at law or in equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Loans and the
proceeds thereof, as servicer under this Agreement. Upon receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Loans or otherwise, shall, subject to
Section 9.02 hereof, pass to and be vested in a successor servicer, and the
successor servicer is hereby authorized and empowered to execute and deliver, on
behalf of the Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments and do or cause to be done all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
including, but not limited to, the transfer and endorsement or assignment of the
Loans and related documents. The Servicer agrees to cooperate with the successor
servicer in effecting the termination of the Servicer's responsibilities and
rights hereunder, including, without limitation, the transfer to the successor
servicer for administration by it of all amounts which shall at the time be
credited by the Servicer to each Collection Account or thereafter received with
respect to the Loans.

            (c)   Upon the occurrence of (i) an Event of Default or Default
under any of the Basic Documents, (ii) a Servicer Event of Default under this
Agreement, (iii) a Rapid Amortization Trigger or (iv) a material adverse change
in the business or financial conditions of the Servicer (each, a "Term Event"),
the Servicer's right to service the Loans pursuant to the terms of this
Agreement shall be in effect for an initial period commencing on the date on
which such Term Event occurred and shall automatically terminate at 5:00 p.m.
(New York City time), on the last business day of the calendar month in which
such Term Event occurred (the "Initial Term"). Thereafter, the Initial Term
shall be extendible in the sole discretion of the Note Agent by written notice
(each, a "Servicer Extension Notice") of the Note Agent for successive one-month
terms (each such term ending at 5:00 p.m. (New York City time), on the last
Business Day of the related month). Following a Term Event, the Servicer hereby
agrees that the Servicer shall be bound for the duration of the Initial Term and
the term covered by any such Servicer Extension Notice to act as the Servicer
pursuant to this Agreement. Following a Term Event, the Servicer agrees that if,
as of 3:00 p.m. (New York City time) on the last Business Day of any month, the
Servicer shall not have received a Servicer Extension Notice from the Note
Agent, the Servicer shall give written notice of such non-receipt to the Note
Agent by 4:00 p.m. (New York City time). Following a Term Event, the failure of
the Note Agent to deliver a Servicer Extension Notice by 5:00 p.m. (New York
City time) shall result in the automatic and immediate termination of the
Servicer (the "Termination Date"). Notwithstanding these time frames, the
Servicer and the Note Agent shall comply with all applicable laws in connection
with such transfer and the Servicer shall continue to service the Loans until
completion of such transfer.

      Section 9.02 Appointment of Successor.

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      On and after the date the Servicer receives a notice of termination
pursuant to Section 9.01 hereof or is automatically terminated pursuant to
Section 9.01 (c) hereof, or the Owner Trustee receives the resignation of the
Servicer evidenced by an Opinion of Counsel or accompanied by the consents
required by Section 8.04 hereof, or the Servicer is removed as servicer pursuant
to this Article IX or Section 4.01 of the Servicing Addendum, then, the Majority
Noteholders shall appoint a successor servicer to be the successor in all
respects to the Servicer in its capacity as Servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof; provided, however, that the
successor servicer shall not be liable for any actions of any servicer prior to
it.

      The successor servicer shall be obligated to make Servicing Advances
hereunder. As compensation therefor, the successor servicer appointed pursuant
to the following paragraph, shall be entitled to all funds relating to the Loans
which the Servicer would have been entitled to receive from the Collection
Account pursuant to Section 5.01 hereof as if the Servicer had continued to act
as servicer hereunder, together with other Servicing Compensation in the form of
assumption fees, late payment charges or otherwise as provided in Section 4.15
of the Servicing Addendum. The Servicer shall not be entitled to any termination
fee if it is terminated pursuant to Section 9.01 hereof but shall be entitled to
any accrued and unpaid Servicing Compensation to the date of termination.

      Any collections received by the Servicer after removal or resignation
shall be endorsed by it to the Indenture Trustee and remitted directly to the
successor servicer. The compensation of any successor servicer appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. The Indenture Trustee, the Issuer, any Custodian, the Servicer and any
such successor servicer shall take such action, consistent with this Agreement,
as shall be reasonably necessary to effect any such succession. Any costs or
expenses incurred by the Indenture Trustee in connection with the termination of
the Servicer and the succession of a successor servicer shall be an expense of
the outgoing Servicer and, to the extent not paid thereby, an expense of such
successor servicer. The Servicer agrees to cooperate with the Indenture Trustee
and any successor servicer in effecting the termination of the Servicer's
servicing responsibilities and rights hereunder and shall promptly provide the
successor servicer all documents and records reasonably requested by it to
enable it to assume the Servicer's functions hereunder and shall promptly also
transfer to the successor servicer all amounts which then have been or should
have been deposited in any Trust Account maintained by the Servicer or which are
thereafter received with respect to the Loans. Upon the occurrence of an Event
of Default, the Majority Noteholders shall have the right to order the
Servicer's Loan Files and all other files of the Servicer relating to the Loans
and all other records of the Servicer and all documents relating to the Loans
which are then or may thereafter come into the possession of the Servicer or any
third parry acting for the Servicer to be delivered to such custodian or
servicer as it selects and the Servicer shall deliver to such custodian or
servicer such assignments as the Majority Noteholders shall request. No
successor servicer shall be held liable by reason of any failure to make, or any
delay in making, any distribution hereunder or any portion thereof caused by (i)
the failure of the Servicer to deliver, or any delay in delivering, cash,
documents or records to it or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer hereunder. No appointment of a
successor to the Servicer hereunder shall be effective until written notice of
such proposed appointment shall have been provided to the Note Agent, the

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Indenture Trustee, the Issuer and the Depositor, the Majority Noteholders and
the Issuer shall have consented in writing thereto.

      In connection with such appointment and assumption, the Majority
Noteholder may make such arrangements for the compensation of such successor
servicer out of payments on the Loans as they and such successor servicer shall
agree.

      Section 9.03 Waiver of Defaults.

      The Majority Noteholders may waive any events permitting removal of the
Servicer as servicer pursuant to this Article IX. Upon any waiver of a past
default, such default shall cease to exist and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every purpose of
this Agreement. No such waiver shall extend to any subsequent or other default
or impair any right consequent thereto except to the extent expressly so waived.

      Section 9.04 Accounting Upon Termination of Servicer.

      Upon termination of the Servicer under this Article IX, the Servicer
shall, at its own expense:

            (a)   deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee the funds in any Trust Account maintained by
the Servicer;

            (b)   deliver to its successor or, if none shall yet have been
appointed, to the Custodian all Loan Files and related documents and statements
held by it hereunder and a Loan portfolio computer tape;

            (c)   deliver to its successor or, if none shall yet have been
appointed, to the Indenture Trustee and to the Issuer and the Securityholders a
full accounting of all funds, including a statement showing the Monthly Payments
collected by it and a statement of monies held in trust by it for payments or
charges with respect to the Loans; and

            (d)   execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Loans to its successor and to more fully and definitively vest
in such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement.

                                    ARTICLE X

                             TERMINATION; PUT OPTION

      Section 10.01 Termination.

            (a)   This Agreement shall terminate upon either: (A) the later of
(i) the satisfaction and discharge of the Indenture and the provisions thereof,
to the Noteholders of all amounts due and owing in accordance with the
provisions hereof or (ii) the disposition of all funds with respect to the last
Loan and the remittance of all funds due hereunder and the payment of all
amounts due and payable, including, in both cases, without limitation,

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<PAGE>

indemnification payments payable pursuant to any Basic Document to the Indenture
Trustee, the Owner Trustee, the Issuer, the Servicer and the Custodian, written
notice of the occurrence of either of which shall be provided to the Indenture
Trustee by the Servicer; or (B) the mutual consent of the Servicer, the
Depositor and all Securityholders in writing and delivered to the Indenture
Trustee by the Servicer.

            (b)   The Securities shall be subject to an early redemption or
termination at the option of the Servicer and the Majority Noteholders in the
manner and subject to the provisions of Section 10.02 and 10.04 of this
Agreement.

            (c)   Except as provided in this Article X, none of the Depositor,
the Servicer nor any Certificateholder or Noteholder shall be entitled to revoke
or terminate the Trust.

      Section 10.02 Optional Termination.

            (a)   The Servicer may, at its option, effect an early termination
of the Trust on any Payment Date on or after the Clean-up Call Date. The
Servicer shall effect such early termination by providing notice thereof to the
Indenture Trustee, the Note Agent and Owner Trustee and by purchasing all of the
Loans at a purchase price, payable in cash, equal to or greater than the
Termination Price. The expense of any Independent appraiser required in
connection with the calculation and payment of the Termination Price under this
Section 10.02 shall be a nonreimbursable expense of the Servicer.

      Any such early termination by the Servicer shall be accomplished by
depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts withdrawable pursuant to Section
5.01(c) (1) hereof) shall be deposited in the Distribution Account and
distributed by the Indenture Trustee pursuant to Section 5.01(c)(3) of this
Agreement and Section 9.1 of the Trust Agreement on the next succeeding Payment
Date; and any amounts received with respect to the Loans and Foreclosure
Properties subsequent to the final Payment Date shall belong to the purchaser
thereof.

      Section 10.03 Notice of Termination.

      Notice of termination of this Agreement or of early redemption and
termination of the Issuer pursuant to Section 10.01 shall be sent by the
Indenture Trustee to the Noteholders in accordance with Section 10.02 of the
Indenture.

      Section 10.04 Put Option.

      The Majority Noteholders may, at their option, effect a put of the entire
outstanding Note Principal Balance, or any portion thereof, to the Trust on any
date by exercise of the Put Option. The Majority Noteholders shall effect such
put by providing notice thereof in accordance with Section 10.05 of the
Indenture.

      Unless otherwise agreed by the Majority Noteholders, on the third Business
Day prior to the Put Date, the Issuer shall deposit the Note Redemption Amount
into the Distribution Account

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<PAGE>

and, if the Put Date occurs after the termination of the Revolving Period and
constitutes a put of the entire outstanding Note Principal Balance, any amounts
then on deposit in the Collection Account (other than any amounts withdrawable
pursuant to Section 5.01(c)(1) hereof) shall be deposited in the Distribution
Account and distributed by the Paying Agent pursuant to section 5.01 (c) (3) of
this Agreement on the Put Date; and any amounts received with respect to the
Loans and Foreclosure Properties subsequent to the Put Date shall belong to the
Issuer.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

      Section 11.01 Acts of Securityholders.

      Except as otherwise specifically provided herein and except with respect
to Section 11.02(b), whenever action, consent or approval of the Securityholders
is required under this Agreement, such action, consent or approval shall be
deemed to have been taken or given on behalf of, and shall be binding upon, all
Securityholders if the Majority Noteholders agree to take such action or give
such consent or approval.

      Section 11.02 Amendment.

            (a)   This Agreement may be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement with notice thereof to the Securityholders, without
the consent of any of the Securityholders, to cure any error or ambiguity, to
correct or supplement any provisions hereof which may be defective or
inconsistent with any other provisions hereof or to add any other provisions
with respect to matters or questions arising under this Agreement; provided,
however, that such action will not adversely affect in any material respect the
interests of the Securityholders, as evidenced by an Opinion of Counsel to such
effect provided at the expense of the party requesting such Amendment.

            (b)   This Agreement may also be amended from time to time by the
Depositor, the Servicer, the Loan Originator, the Indenture Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Agreement, or of modifying
in any manner the rights of the Securityholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on Loans or distributions which are required to be made
on any Security, without the consent of the holders of 100% of the Securities,
(ii) adversely affect in any material respect the interests of any of the
holders of the Securities in any manner other than as described in clause (i),
without the consent of the holders of 100% of the Securities, or (iii) reduce
the percentage of the Securities, the consent of which is required for any such
amendment, without the consent of the holders of 100% of the Securities.

            (c)   It shall not be necessary for the consent of Securityholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.

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      Prior to the execution of any amendment to this Agreement, the Issuer and
the Indenture Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement. The Issuer and the Indenture Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Issuer's own
rights, duties or immunities of the Issuer or the Indenture Trustee, as the case
may be, under this Agreement.

      Section 11.03 Recordation of Agreement.

      To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Property is
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Securityholders' expense
on direction of the Majority Noteholders but only when accompanied by an Opinion
of Counsel to the effect that such recordation materially and beneficially
affects the interests of the Securityholders or is necessary for the
administration or servicing of the Loans.

      Section 11.04 Duration of Agreement.

      This Agreement shall continue in existence and effect until terminated as
herein provided.

      Section 11.05 Governing Law.

      THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW).

      Section 11.06 Notices.

      All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if (i) delivered personally, mailed by
overnight mail, certified mail or registered mail, postage prepaid, or (ii)
transmitted by telecopy, upon telephone confirmation of receipt thereof, as
follows: (I) in the case of the Depositor, to Option One Loan Warehouse
Corporation, 3 Ada, Irvine, California 92618, or such other addresses or
telecopy or telephone numbers as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Depositor; (II)
in the case of the Trust, to Option One Owner Trust 2003-4, c/o Wilmington Trust
Company, One Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration, telecopy number: (302)
636-4144, telephone number: (302) 636-1000, or such other address or telecopy or
telephone numbers as may hereafter be furnished to the Noteholders and the other
parties hereto in writing by the Trust; (III) in the case of the Loan
Originator, to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618,
Attention: William O'Neill, telecopy number: (949) 790-7540, telephone number:
(949) 790-7504 or such other addresses or telecopy or

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<PAGE>

telephone numbers as may hereafter be furnished to the Securityholders and the
other parties hereto in writing by the Loan Originator; (IV) in the case of the
Servicer, to Option One Mortgage Corporation, 3 Ada, Irvine, California 92618,
Attention: William O'Neill, telecopy number: (949) 790-7540, telephone number:
(949) 790-7504 or such other addresses or telecopy or telephone numbers as may
hereafter be furnished to the Securityholders and the other parties hereto in
writing by the Servicer; and (V) in the case of the Indenture Trustee, at the
Corporate Trust Office, as defined in the Indenture; any such notices shall be
deemed to be effective with respect to any party hereto upon the receipt of such
notice or telephone confirmation thereof by such party, except; provided, that
notices to the Securityholders shall be effective upon mailing or personal
delivery.

      Section 11.07 Severability of Provisions.

      If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.

      Section 11.08 No Partnership.

      Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.

      Section 11.09 Counterparts.

      This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.

      Section 11.10 Successors and Assigns.

      This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Loan Originator, the Depositor, the Indenture Trustee, the Issuer
and the Securityholders and their respective successors and permitted assigns.

      Section 11.11 Headings.

      The headings of the various Sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.

      Section 11.12 Actions of Securityholders.

            (a)   Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be given or taken
by Securityholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and except as herein

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<PAGE>

otherwise expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Depositor, the Servicer or the
Issuer. Proof of execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Agreement and conclusive
in favor of the Depositor, the Servicer and the Issuer if made in the manner
provided in this Section 11.12.

            (b)   The fact and date of the execution by any Securityholder of
any such instrument or writing may be proved in any reasonable manner which the
Depositor, the Servicer or the Issuer may deem sufficient.

            (c)   Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Securityholder shall bind every holder of
every Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Servicer or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Security.

            (d)   The Depositor, the Servicer or the Issuer may require
additional proof of any matter referred to in this Section 11.12 as it shall
deem necessary.

      Section 11.13 Non-Petition Agreement.

      Notwithstanding any prior termination of any Basic Document, the Loan
Originator, the Servicer, the Depositor and the Indenture Trustee each severally
and not jointly covenants that it shall not, prior to the date which is one year
and one day after the payment in full of the all of the Notes, acquiesce,
petition or otherwise, directly or indirectly, invoke or cause the Trust or the
Depositor to invoke the process of any governmental authority for the purpose of
commencing or sustaining a case against the Issuer or Depositor 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 Issuer or Depositor or any substantial part of their respective property
or ordering the winding up or liquidation of the affairs of the Issuer or the
Depositor.

      Section 11.14 Holders of the Securities.

            (a)   Any sums to be distributed or otherwise paid hereunder or
under this Agreement to the holders of the Securities shall be paid to such
holders pro rata based on their Percentage Interests;

            (b)   Where any act or event hereunder is expressed to be subject to
the consent or approval of the holders of the Securities, such consent or
approval shall be capable of being given by the holder or holders evidencing in
the aggregate not less than 51% of the Percentage Interests.

      Section 11.15 Due Diligence Fees, Due Diligence.

      The Loan Originator acknowledges that the Note Agent has the right to
perform continuing due diligence reviews with respect to the Loans, for purposes
of verifying compliance with the representations, warranties and specifications
made hereunder, or otherwise, and the

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Loan Originator agrees that upon reasonable prior notice (with no notice being
required upon the occurrence of an Event of Default) to the Loan Originator, the
Note Agent, the Indenture Trustee and Custodian or its authorized
representatives will be permitted during normal business hours to examine,
inspect, and make copies and extracts of, the Loan Files and any and all
documents, records, agreements, instruments or information relating to such
Loans in the possession or under the control of the Servicer and the Indenture
Trustee. The Loan Originator also shall make available to the Note Agent a
knowledgeable financial or accounting officer for the purpose of answering
questions respecting the Loan Files and the Loans and the financial condition of
the Loan Originator. Without limiting the generality of the foregoing, the Loan
Originator acknowledges that the Note Agent may purchase Notes based solely upon
the information provided by the Loan Originator to the Note Agent in the Loan
Schedule and the representations, warranties and covenants contained herein, and
that the Note Agent, at its option, has the right at any time to conduct a
partial or complete due diligence review on some or all of the Loans securing
such purchase, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Loan. The Note Agent may underwrite such
Loans itself or engage a mutually agreed upon third party underwriter to perform
such underwriting. The Loan Originator agrees to cooperate with the Note Agent
and any third party underwriter in connection with such underwriting, including,
but not limited to, providing the Note Agent and any third party underwriter
with access to any and all documents, records, agreements, instruments or
information relating to such Loans in the possession, or under the control, of
the Servicer. The Loan Originator further agrees that the Loan Originator shall
reimburse the Note Agent for any and all reasonable out-of-pocket costs and
expenses incurred by the Note Agent in connection with the Note Agent's
activities pursuant to this Section 11.15 hereof (the "Due Diligence Fees"). In
addition to the obligations set forth in Section 11.17 of this Agreement, the
Note Agent agrees (on behalf of itself and its Affiliates, directors, officers,
employees and representatives) to use reasonable precaution to keep
confidential, in accordance with its customary procedures for handling
confidential information and in accordance with safe and sound practices, and
not to disclose to any third party, any non-public information supplied to it or
otherwise obtained by it hereunder with respect to the Loan Originator or any of
its Affiliates (including, but not limited to, the Loan File); provided,
however, that nothing herein shall prohibit the disclosure of any such
information to the extent required by statute, rule, regulation or judicial
process; provided, further that, unless specifically prohibited by applicable
law or court order, the Note Agent shall, prior to disclosure thereof, notify
the Loan Originator of any request for disclosure of any such non-public
information. The Note Agent further agrees not to use any such non-public
information for any purpose unrelated to this Agreement and that the Note Agent
shall not disclose such non-public information to any third party underwriter in
connection with a potential Disposition without obtaining a written agreement
from such third party underwriter to comply with the confidentiality provisions
of this Section 11.15.

      Section 11.16 No Reliance.

      Each of the Loan Originator, the Depositor and the Issuer hereby
acknowledges that it has not relied on the Note Agent or any of its officers,
directors, employees, agents and "control persons" as such term is used under
the Act and under the Securities Exchange Act of 1934, as amended, for any tax,
accounting, legal or other professional advice in connection with the
transactions contemplated by the Basic Documents, that each of the Loan
Originator, the

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Depositor and the Issuer has retained and been advised by such tax, accounting,
legal and other professionals as it has deemed necessary in connection with the
transactions contemplated by the Basic Documents and that the Note Agent makes
no representation or warranty, and shall have no liability with respect to, the
tax, accounting or legal treatment or implications relating to the transactions
contemplated by the Basic Documents.

      Section 11.17 Confidential Information.

      In addition to the confidentiality requirements set forth in Section 11.15
of the Agreement, each Noteholder, as well as the Indenture Trustee and the
Disposition Agent (each of said parties singularly referred to herein as a
"Receiving Party" and collectively referred to herein as the "Receiving
Parties"), agrees to hold and treat all Confidential Information (as defined
below) in confidence and in accordance with this Section. Such Confidential
Information will not, without the prior written consent of the Servicer and the
Loan Originator, be disclosed or used by such Receiving Parties or its
subsidiaries, Affiliates, directors, officers, members, employees, agents or
controlling persons (collectively, the "Information Recipients") other than for
the purpose of making a decision to purchase or sell Notes or taking any other
permitted action under this Agreement and or any other Basic Document. Each
Receiving Party agrees to disclose Confidential Information only to its
Information Recipients who need to know it for the purpose of making a decision
to purchase or sell Notes or the taking of any other permitted action under this
Agreement and or any other Basic Document (including in connection with the
servicing of the Loans and in connection with any servicing transfers) or to
Rating Agencies or liquidity providers in the course of the Receiving Party's
business and only to the extent required for such Person's performance of their
respective evaluation of the Receiving Party's financial condition, and who are
informed by such Receiving Party of its confidential nature and who agree to be
bound by the terms of this Section 11.17. Disclosure that is not in violation of
the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act or other
applicable law by such Receiving Party of any Confidential Information at the
request of its outside auditors or governmental regulatory authorities in
connection with an examination of a Receiving Party by any such authority shall
not constitute a breach of its obligations under this Section 11.17 and shall
not require the prior consent of the Servicer and the Loan Originator.

      Each Receiving Party shall be responsible for any breach of this Section
11.17 by its Information Recipients. The Note Agent may use Confidential
Information for internal due diligence purposes in connection with its analysis
of the transactions contemplated by the Basic Documents. The Disposition Agent
may disclose Confidential Information to the Disposition Participants as
required to effect Dispositions. This Section 11.17 shall terminate upon the
occurrence of an Event of Default; provided, however, that such termination
shall not relieve the Receiving Parties or their respective Information
Recipients from the obligation to comply with the Gramm-Leach-Bliley Act or
other applicable law with respect to their use or disclosure of Confidential
Information following the occurrence of an Event of Default.

      As used herein, "Confidential Information" means non-public personal
information (as defined in the Gramm-Leach-Bliley Act and its enabling
regulations issued by the Federal Trade Commission) regarding Borrowers.
Confidential information shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by a
Receiving Party or any Information Recipients; (ii) was available to a Receiving
Party on a

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non-confidential basis prior to its disclosure to Receiving Party by the
Servicer or the Loan Originator; (iii) is required to be disclosed by a
governmental authority or related governmental agencies or as otherwise required
by law; (iv) becomes available to a Receiving Party on a non-confidential basis
from a person other than the Servicer or the Loan Originator who, to the best
knowledge of such Receiving Party, is not otherwise bound by a confidentiality
agreement with the Servicer or the Loan Originator and is not otherwise
prohibited from transmitting the information to such Receiving Party.

      Section 11.18 Conflicts.

      Notwithstanding anything contained in the Basic Documents to the contrary,
in the event of the conflict between the terms of this Agreement and any other
Basic Document, the terms of this Agreement shall control.

      Section 11.19 Limitation on Liability.

      It is expressly understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company, not
individually or personally, but solely as Owner Trustee of Option One Owner
Trust 2003-4, in the exercise of the powers and authority conferred and vested
in it, (b) each of the representations, undertakings and agreements herein made
on the part of the Issuer is made and intended not as personal representations,
undertakings and agreements by Wilmington Trust Company but is made and intended
for the purpose for binding only the Issuer, (c) nothing herein contained shall
be construed as creating any liability on Wilmington Trust Company, individually
or personally, to perform any covenant either expressed or implied contained
herein, all such liability, if any, being expressly waived by the parties hereto
and by any Person claiming by, through or under the parties hereto and (d) under
no circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Agreement or any other related documents.

      Section 11.20 No Agency.

      Nothing contained herein or in the Basic Documents shall be construed to
create an agency or fiduciary relationship between the Note Agent or the
Majority Noteholders or any of their Affiliates and the Issuer, the Depositor,
the Loan Originator or the Servicer. None of the Note Agent, the Majority
Noteholders or any of their Affiliates shall be liable for any acts or actions
affected in connection with a disposition of Loans, including without
limitation, any Securitization pursuant to Section 3.06, any Loan Originator Put
or Servicer Call pursuant to Section 3.07 hereof nor any Whole Loan Sale
pursuant to Section 3.10 hereof.

                            (SIGNATURE PAGE FOLLOWS)

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      IN WITNESS WHEREOF, the Issuer, the Depositor, the Servicer, the Indenture
Trustee and the Loan Originator have caused their names to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written, to this SALE AND SERVICING AGREEMENT.

                                          OPTION ONE OWNER TRUST 2003-4,

                                          By: Wilmington Trust Company not in
                                              its individual capacity but solely
                                              as Owner Trustee

                                          By: /s/ Joann A. Rozell
                                              ----------------------------------
                                              Name:  Joann A. Rozell
                                              Title: Financial Services Officer

                                          OPTION ONE LOAN WAREHOUSE
                                          CORPORATION, as Depositor

                                          By: /s/ William L. O' Neill
                                              ----------------------------------
                                              Name:  William L. O' Neill
                                              Title: Senior Vice President

                                          OPTION ONE MORTGAGE CORPORATION,
                                          as Loan Originator and Servicer

                                          By: /s/ William L. O' Neill
                                              ----------------------------------
                                              Name:  William L. O' Neill
                                              Title: Senior Vice President

                                          WELLS FARGO BANK MINNESOTA,
                                          NATIONAL ASSOCIATION,
                                          as Indenture Trustee

                                          By: /s/ Amy Doyle
                                              ----------------------------------
                                              Name:  Amy Doyle
                                              Title: Vice President

                                 Signature Page
                                       to
                          Sale and Servicing Agreement

<PAGE>

                                    EXHIBIT A

              FORM OF NOTICE OF ADDITIONAL NOTE PRINCIPAL BALANCE

             [Letterhead of Option One Loan Warehouse Corporation]

                                     [Date]

Option One Owner Trust 2003-4
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration

Wells Fargo Bank Minnesota, National Association
9062 Old Annapolis Road
Columbia, Maryland 21045
Attention: Option One Owner Trust 2003-4

Bank One, NA (Main Office Chicago)
Asset Backed Finance
Suite 1L1-0079, 1-19
1 Bank Plaza
Chicago, IL 60670-0079
Telecopier No.: (312)732-1844
Telephone No.: (312)732 2960

      Re: Option One Owner Trust 2003-4 Mortgage-Backed Notes

      Reference is made to the Sale and Servicing Agreement, dated as of August
8, 2003 (the "Sale and Servicing Agreement"), among Option One Owner Trust
2003-4, as Issuer, Option One Loan Warehouse Corporation, as Depositor, Option
One Mortgage Corporation, as Loan Originator and Servicer, and Wells Fargo Bank
Minnesota, National Association, as Indenture Trustee. Capitalized terms not
defined herein shall have the meanings assigned to such terms in the Sale and
Servicing Agreement.

      The undersigned ____________, a duly appointed ___________ of Option One
Loan Warehouse Corporation, acting in such capacity, hereby requests an advance
of Additional Note Principal Balance in an amount of $_____________, such amount
to be advanced on__________, 200_____, a Business Day at least two Business Days
from the date hereof.

                                          Very truly yours,

                                          OPTION ONE LOAN WAREHOUSE
                                          CORPORATION

                                          By: __________________________________
                                          Name:
                                          Title:

                                       A-l
<PAGE>

                                    EXHIBIT B

            FORM OF SERVICER'S REMITTANCE REPORT TO INDENTURE TRUSTEE

Trial Balance Information Report P139

<TABLE>
<CAPTION>
                                                 Next
                             Investor  Borrower  Pymt  Interest  P&I   Principal
Investor #  Category  Loan #  Loan #     Name    Date    Rate    Pymt   Balance
- ----------  --------  ------ --------  --------  ----  --------  ----  ---------
<S>         <C>       <C>    <C>       <C>       <C>   <C>       <C>   <C>

- ----------  --------  -----  --------  --------  ----  --------  ----  ---------
- ----------  --------  -----  --------  --------  ----  --------  ----  ---------
</TABLE>

Collection Activity Information Report S215

<TABLE>
<CAPTION>
                                                 Pymt
Investor          Loan Investor Transaction Pymt  Due                           Service   Net    Total   Principal  Late
   #     Category  #     Loan #     Date     #   Date Escrow Principal Interest  Fees   Interest Deposit  Balance  Charges
- -------- -------- ---- -------- ----------- ---- ---- ------ --------- -------- ------- -------- ------- --------- -------
<S>      <C>      <C>  <C>      <C>         <C>  <C>  <C>    <C>       <C>      <C>     <C>      <C>     <C>       <C>

- -------- -------- ---- -------- ----------- ---- ---- ------ --------- -------- ------- -------- ------- --------- -------
- -------- -------- ---- -------- ----------- ---- ---- ------ --------- -------- ------- -------- ------- --------- -------
</TABLE>

Payoff Activity Information Report S214

<TABLE>
<CAPTION>
                                                            Next
Investor          Loan Investor Date P&I  Interest Service  Pymt                    Service   Net    Prepay    Total
   #     Category  #    Loan #  Paid Pymt   Rate   Fee Rate Date Principal Interest  Fees   Interest Premium Collected
- -------- -------- ---- -------- ---- ---- -------- -------- ---- --------- -------- ------- -------- ------- ---------
<S>      <C>      <C>  <C>      <C>  <C>  <C>      <C>      <C>  <C>       <C>      <C>     <C>      <C>     <C>

- -------- -------- ---- -------- ---- ---- -------- -------- ---- --------- -------- ------- -------- ------- ---------
- -------- -------- ---- -------- ---- ---- -------- -------- ---- --------- -------- ------- -------- ------- ---------
</TABLE>

                                      B-1

<PAGE>


                                   EXHIBIT C

                            FORM OF S&SA ASSIGNMENT

      ASSIGNMENT NO.________________OF LOANS ("S&SA Assignment"),
dated_____________________________, (the "Transfer Date"), by OPTION ONE LOAN
WAREHOUSE CORPORATION, (the "Depositor") to OPTION ONE OWNER TRUST 2003-4 (the
"Issuer") pursuant to the Sale and Servicing Agreement referred to below.

                                         WITNESSETH:

      WHEREAS, the Depositor and the Issuer are parties to the Sale and
Servicing Agreement dated as of August 8, 2003 (the "Sale and Servicing
Agreement") among the Depositor, the Issuer, the Servicer, the Loan Originator
and the Indenture Trustee on behalf of the Noteholders, hereinafter as such
agreement may have been, or may from time to time be, amended, supplemented or
otherwise modified;

      WHEREAS, pursuant to the Sale and Servicing Agreement, the Depositor
wishes to sell, convey, transfer and assign Loans to the Issuer in exchange for
cash consideration, the Trust Certificates and other good and valid
consideration the receipt and sufficiency of which is hereby acknowledged; and

      WHEREAS, the Issuer is willing to acquire such Loans subject to the terms
and conditions hereof and of the Sale and Servicing Agreement;

      NOW THEREFORE, the Depositor and the Issuer hereby agree as follows:

      1. Defined Terms. All capitalized terms defined in the Sale and Servicing
Agreement and used herein shall have such defined meanings when used herein,
unless otherwise defined herein.

      2. Designation of Loans. The Depositor does hereby deliver herewith a Loan
Schedule containing a true and complete list of each Loan to be conveyed on the
Transfer Date. Such list is marked as Schedule A to this S&SA Assignment and is
hereby incorporated into and made a part of this S&SA Assignment.

      3. Conveyance of Loans. The Depositor hereby sells, transfers, assigns and
conveys to the Issuer, without recourse, all of the right, title and interest of
the Depositor in and to the Loans and all proceeds thereof listed on the Loan
Schedule attached hereto, including all interest and principal received by the
Depositor or the Servicer on or with respect to the Loans on or after the
related Transfer Cut-off Date, together with all right, title and interest in
and to the proceeds of any related Mortgage Insurance Policies.

      4. Issuer Acknowledges Assignment. As of the Transfer Date, pursuant to
this S&SA Assignment and Section 2.01(a) of the Sale and Servicing Agreement,
the Issuer acknowledges its receipt of the Loans listed on the attached Loan
Schedule and all other related property in the Trust Estate.

                                       C-1
<PAGE>

      5. Acceptance of Rights But Not Obligations. The foregoing sale, transfer,
assignment, set over and conveyance does not, and is not intended to, result in
a creation or an assumption by the Issuer of any obligation of the Depositor,
the Loan Originator or any other Person in connection with this S&SA Assignment
or under any agreement or instrument relating thereto except as specifically set
forth herein.

      6. Depositor Acknowledges Receipt of Sales Price. The Depositor hereby
acknowledges receipt of the Sales Price or that is otherwise distributed at its
direction.

      7. Conditions Precedent. The conditions precedent in Section 2.06(a) of
the Sale and Servicing Agreement have been satisfied.

      8. Limitation on Liability. Section 11.19 of the Sale and Servicing
Agreement is incorporated herein by reference.

      9. Counterparts. This S&SA Assignment may be executed in any number of
counterparts all of which taken together shall constitute one and the same
instrument.

                                       C-2
<PAGE>

      IN WITNESS WHEREOF, the undersigned have caused this S&SA Assignment to be
duly executed and delivered by their respective duly authorized officers on the
day and year first above written.

                                          OPTION ONE LOAN WAREHOUSE CORPORATION,
                                          as Depositor

                                          By: _______________________________
                                          Name:
                                          Title:

                                          OPTION ONE OWNER TRUST 2003-4,
                                          as Issuer

                                          By: Wilmington Trust Company
                                              not in its individual
                                              capacity but solely as
                                              Owner Trustee

                                          By: _______________________________
                                          Name:
                                          Title:

                                       C-3
<PAGE>

                                    EXHIBIT D

                                  LOAN SCHEDULE

      The Loan Schedule shall set forth the following information with respect
to each Loan (other than Wet Funded Loans):

            (1)   the Loan Originator's Loan identifying number;

            (2)   the Mortgagor's name and social security number;

            (3)   the street address of the Mortgaged Property, including the
                  state and zip code;

            (4)   a code indicating whether the Mortgaged Property was
                  represented by the Mortgagor as being owner-occupied on the
                  date of origination;

            (5)   the type of Residential Dwelling constituting the Mortgaged
                  Property;

            (6)   the months to maturity at origination, based on the original
                  amortization schedule;

            (7)   the loan-to-value ratio at origination;

            (8)   the rate of interest in effect on the Transfer Cut-off Date;

            (9)   the date on which the first monthly payment was due, and, if
                  different, the date on which monthly payments are due as of
                  the Transfer Cut-off Date;

            (10)  the stated maturity date;

            (11)  the amount of the monthly payment due at origination;

            (12)  the amount of the monthly payment due on the first due date
                  after the Transfer Cut-off Date;

            (13)  the interest paid-through date;

            (14)  the last monthly payment date on which any portion of the
                  monthly payment was applied to the reduction of principal;

            (15)  the original principal balance;

            (16)  the unpaid principal balance as of the close of business on
                  the Transfer Cut-off Date;

            (17)  if the Loan is an adjustable-rate loan, the initial adjustment
                  date thereunder, including the look-back period;

            (18)  if the Loan is an adjustable-rate loan, the gross margin over
                  the applicable interest rate index;

            (19)  a code indicating the purpose of the Loan, as indicated by the
                  Mortgagor (i.e., purchase financing, rate/term refinancing or
                  cash-out refinancing);

            (20)  if the Loan is an adjustable-rate loan, the maximum interest
                  rate;

            (21)  if the Loan is an adjustable-rate loan, the minimum interest
                  rate;

            (22)  the interest rate at origination;

            (23)  if the Loan is an adjustable-rate loan, the periodic rate cap
                  and the maximum adjustment in the interest rate that may be
                  made on the first adjustment date immediately following the
                  Transfer Cut-off Date;

                                      D-1
<PAGE>

            (24)  a code indicating the documentation program (i.e., full
                  documentation, limited documentation or stated income);

            (25)  if the Loan is an adjustable-rate loan, the applicable
                  interest rate index to which the gross margin is added,
                  including the source of such index;

            (26)  if the Loan is an adjustable-rate loan, the first adjustment
                  date thereunder to occur after the Transfer Cut-off Date;

            (27)  the risk grade;

            (28)  any risk upgrade;

            (29)  the appraised value of the Mortgaged Property at origination;

            (30)  if different from the appraised value, the dollar value of the
                  review appraisal of the Mortgaged Property at origination;

            (31)  the sale price of the Mortgaged Property, if applicable;

            (32)  the product type code (e.g., 3/27, 2/28, balloon, etc.);

            (33)  a code indicating whether the Loan is a first-lien loan or a
                  second-lien loan;

            (34)  if the Loan is a second-lien loan, the outstanding principal
                  balance of the first lien on the date of origination of such
                  Loan;

            (35)  if the Loan is a second-lien loan, the combined loan-to-value
                  ratio of such Loan and the first lien to which it is subject,
                  as of the origination date of such Loan;

            (36)  whether such Loan is 30 days or more Delinquent;

            (37)  the prepayment penalty code;

            (38)  the prepayment penalty term;

            (39)  the late charge;

            (40)  the rounding code (next highest or nearest 0.125%); and

            (41)  the Mortgagor's FICO score, if any.

                                      D-2

<PAGE>

      The Loan Schedule to be delivered with respect to Wet Funded Loans shall
set forth the following information:

MBMS Long Format '97 w\ Mersflag

<TABLE>
<CAPTION>
            Start    length/     End
 Field       Pos      width      Pos     Dec                  Definition
- --------    -----    -------    -----    ---    ------------------------------------------------
<S>         <C>      <C>        <C>      <C>    <C>
Loanidp        1        13        13      0     Previous loan number/ (OLD LOAN NUMBER OR
                                                INVESTOR LOAN NUMBER)
Lname         14        35        48      0     Primary borrower's name/ (LAST, FIRST MIDDLE)
Casenum       49        13        61      0     FHA or VA case number
Closed        62         6        67      0     Date the loan closed/ (MMDDYY)
Firstdue      68         6        73      0     Date first pymt on loan was due/ (MMDDYY)
Issuer        74         4        77      0     User defined issuer code/ (LEAVE BLANK -- PAD
                                                WITH SPACES)
Loanid        78        13        90      0     Loan number/ (SERVICER LOAN NUMBER)
Maturity      91         6        96      0     Maturity date of the loan/ (MMDDYY)
Rate          97         9       105      0     Interest rate on note/ (X 1000 TO REMOVE DECIMAL
                                                (7.125% IS 7125)
Lnamount     106        11       116      0     Original loan amount/ (X 100 TO REMOVE DECIMAL
                                                (100000.00 IS 1000000)
PI           117        10       126      0     Orig principal plus interest/ (X 100 TO REMOVE
                                                DECIMAL (1000.00 IS 100000)
Poolnum      127        10       136      0     Pool number/ (AGENCY POOL NUMBER OR PRIVATE
                                                INVESTOR CODE - CPI)
State        137         2       138      0     Property State abbreviation/ (E.G., NY)
City         139        15       153      0     Property City
Zip          154         5       158      0     Property Zip code
Address      159        35       193      0     Property address/ (NUMBER AND STREET NAME)
Sid          194        23       216      0     Barcode ID (LEAVE BLANK -- PAD WITH SPACES)
</TABLE>

                                       D-3
<PAGE>

MBMS Long Format '97 w\ Mersflag continued:

<TABLE>
<CAPTION>
             Start    length/     End
Field         Pos      width      Pos      Dec                    Definition
- ---------    -----    -------    -----    -----    -------------------------------------------
<S>          <C>      <C>        <C>      <C>      <C>
Armadj        217        6        222       0      1st Adjustment Date (MMDDYY)
Armconv       223        1        223       0      Convertible Account (Y/N)
Armround      224        6        229       0      Percent Rounded (X 100000 TO REMOVE DECIMAL
                                                   (7.12500% IS 712500)
Armacap       230        5        234       0      Annual Cap (X 1000 TO REMOVE DECIMAL
                                                   (10.125% IS 10125)
Armlcap       235        5        239       0      Lifetime Cap (X 1000 TO REMOVE DECIMAL
                                                   (10.125% IS 10125)
Armmargin     240        4        243       0      Margin (X 1000 TO REMOVE DECIMAL (7.125% IS
                                                   7125)
Armfloor      244        5        248       0      Floor (X 1000 TO REMOVE DECIMAL (10.125% IS
                                                   10125)
Mersmin       249       18        266       0      Mers Min
Mersflag      267        1        267       0      Mersflag
Filler        268       33        300       0      Filler field/ (PAD WITH SPACES)
</TABLE>

                                      D-4

<PAGE>

                                    EXHIBIT E

               REPRESENTATIONS AND WARRANTIES REGARDING THE LOANS

      The Loan Originator hereby represents and warrants to the other parties to
the Sale and Servicing Agreement and the Securityholders, with respect to each
such Loan as of the related Transfer Date (except as otherwise expressly agreed
in writing by the Majority Noteholders):

            (i) The information set forth in the related Loan Schedule and the
information contained on the electronic data file delivered to the Initial
Noteholder is complete, true and correct;

            (ii) All payments required to be made up to the close of business on
the Transfer Date for such Loan under the terms of the Promissory Note have been
made; the Loan Originator has not advanced funds, or induced, solicited or
knowingly received any advance of funds from a party other than the owner of the
related Mortgaged Property, directly or indirectly, for the payment of any
amount required by the Promissory Note or Mortgage;

            (iii) There are no delinquent taxes, ground rents, water charges,
sewer rents, assessments, insurance premiums, leasehold payments, including
assessments payable in future installments or other outstanding charges
affecting the related Mortgaged Property;

            (iv) The terms of the Promissory Note and the Mortgage have not been
impaired, waived, altered or modified in any respect, except by written
instruments, recorded in the applicable public recording office if necessary to
maintain the lien priority of the Mortgage, and which have been delivered to the
Custodian; the substance of any such waiver, alteration or modification has been
approved by the insurer under the Primary Insurance Policy, if any, and the
title insurer, to the extent required by the related policy, and is reflected on
the related Loan Schedule. No instrument of waiver, alteration or modification
has been executed, and no Borrower has been released, in whole or in part,
except in connection with an assumption agreement approved by the insurer under
the Primary Insurance Policy, if any, the title insurer, to the extent required
by the policy, and which assumption agreement has been delivered to the
Custodian and the terms of which are reflected in the related Loan Schedule;

            (v) The Promissory Note and the Mortgage are not subject to any
right of rescission, set-off, counterclaim or defense, including the defense of
usury, nor will the operation of any of the terms of the Promissory Note and the
Mortgage, or the exercise of any right thereunder, render the Mortgage
unenforceable, in whole or in part, or subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto;

            (vi) All buildings upon the Mortgaged Property are insured by an
insurer acceptable to Fannie Mae or Freddie Mac against loss by fire, hazards of
extended coverage and such other hazards as are customary in the area where the
Mortgaged Property is located, pursuant to insurance policies conforming to the
requirements of the Servicing Addendum. All such insurance policies contain a
standard mortgagee clause naming the Loan Originator, its successors and assigns
as mortgagee and all premiums thereon have been paid. If the Mortgaged Property
is in an area identified on a Flood Hazard Map or Flood Insurance Rate Map
issued by

                                       E-1
<PAGE>

the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available) a flood insurance policy meeting
the requirements of the current guidelines of the Federal Insurance
Administration is in effect which policy conforms to the requirements of Fannie
Mae and Freddie Mac. The Mortgage obligates the Borrower thereunder to maintain
all such insurance at the Borrower's cost and expense, and on the Borrower's
failure to do so, authorizes the holder of the Mortgage to maintain such
insurance at Borrower's cost and expense and to seek reimbursement therefor from
the Borrower;

            (vii) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity, fair housing
or disclosure laws applicable to the origination and servicing of mortgage loans
of a type similar to the Loans have been complied with;

            (viii) The Mortgage has not been satisfied, canceled, subordinated
or rescinded, in whole or in part, and the Mortgaged Property has not been
released from the lien of the Mortgage, in whole or in part, nor has any
instrument been executed that would effect any such satisfaction, cancellation,
subordination, rescission or release;

            (ix) The Mortgage is a valid, existing and enforceable first lien
(or, with respect to Loans identified as Second Lien Loans on the Loan Schedule,
second lien) on the Mortgaged Property, including all improvements on the
Mortgaged Property subject only to (a) the lien of current real property taxes
and assessments not yet due and payable, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of the public record as
of the date of recording being acceptable to mortgage lending institutions
generally and specifically referred to in the lender's title insurance policy
delivered to the originator of the Loan and which do not adversely affect the
Appraised Value of the Mortgaged Property, and (c) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged Property. Any
security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Loan establishes and creates a valid, existing
and enforceable first lien and first priority security interest on the property
described therein and the Loan Originator has full right to sell and assign the
same to the Depositor and the Issuer. The Mortgaged Property was not, as of the
date of origination of the Loan, subject to a mortgage, deed of trust, deed to
secure debt or other security instrument creating a lien subordinate to the lien
of the Mortgage;

            (x) The Promissory Note and the related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms;

            (xi) All parties to the Promissory Note and the Mortgage had legal
capacity to enter into the Loan and to execute and deliver the Promissory Note
and the Mortgage, and the Promissory Note and the Mortgage have been duly and
properly executed by such parties. The Borrower is a natural person;

            (xii) The proceeds of the Loan have been fully disbursed to or for
the account of the Borrower and there is no obligation for the mortgagee to
advance additional funds

                                       E-2
<PAGE>

thereunder and any and all requirements as to completion of any on-site or
off-site improvement and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees and expenses incurred in making or closing
the Loan and the recording of the Mortgage have been paid, and the Borrower is
not entitled to any refund of any amounts paid or due to the Loan Originator
pursuant to the Promissory Note or Mortgage;

            (xiii) The Loan Originator is the sole legal, beneficial and
equitable owner of the Promissory Note and the Mortgage and has full right to
transfer and sell the Loan to the Depositor and the Issuer free and clear of any
encumbrance, equity, lien, pledge, charge, claim or security interest;

            (xiv) All parties which have had any interest in the Loan, whether
as mortgagee, assignee, pledgee or otherwise, are (or, during the period in
which they held and disposed of such interest, were) in compliance with any and
all applicable "doing business" and licensing requirements of the laws of the
state wherein the Mortgaged Property is located;

            (xv) The Loan is covered by a lender's title insurance policy
(which, in the case of an ARM has an adjustable rate mortgage endorsement)
commercially acceptable to prudent mortgage lending institutions, issued by a
title insurer licensed and qualified to do business in the jurisdiction where
the Mortgaged Property is located, insuring (subject to the exceptions contained
in (ix)(a) and (b) above) the Loan Originator, its successors and assigns as to
the first priority lien of the Mortgage in the original principal amount of the
Loan and, with respect to any ARM, against any loss by reason of the invalidity
or unenforceability of the lien resulting from the provisions of the Mortgage
providing for adjustment in the Loan Interest Rate and Monthly Payment.
Additionally, such lender's title insurance policy affirmatively insures ingress
and egress to and from the Mortgaged Property, and against encroachments by or
upon the Mortgaged Property or any interest therein. The Loan Originator is the
sole insured of such lender's title insurance policy, and such lender's title
insurance policy is in full force and effect and will be in full force and
effect, and the issuer will be insured thereunder, upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under such
lender's title insurance policy, and no prior holder of the related Mortgage,
including the Loan Originator, has done, by act or omission, anything which
would impair the coverage of such lender's title insurance policy;

            (xvi) There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Promissory Note and no event
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration, and the Loan Originator has not waived any default, breach,
violation or event of acceleration;

            (xvii) There are no mechanics' or similar liens or claims which have
been filed for work, labor or material (and no rights are outstanding that under
law could give rise to such lien) affecting the related Mortgaged Property which
are or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage;

            (xviii) All improvements which were considered in determining the
Appraised Value of the related Mortgaged Property lay wholly within the
boundaries and building

                                       E-3
<PAGE>

restriction lines of the Mortgaged Property, and no improvements on adjoining
properties encroach upon the Mortgaged Property;

            (xix) The Loan was originated by the Loan Originator or by a savings
and loan association, a savings bank, a commercial bank or similar banking
institution which is supervised and examined by a federal or state authority, or
by a mortgagee approved as such by the Secretary of HUD;

            (xx) Principal payments on the Loan commenced no more than two
months after the proceeds of the Loan were disbursed. The Loan bears interest at
the Loan Interest Rate. With respect to each Loan unless otherwise stated on the
Loan Schedule, the Promissory Note is payable on the first day of each month in
Monthly Payments, which, in the case of each fixed-rate Loan except for Balloon
Loans, are sufficient to fully amortize the original principal balance over the
original term thereof and to pay interest at the related Loan Interest Rate,
and, in the case of each ARM, are changed on each Adjustment Date, and in any
case, are sufficient to fully amortize the original principal balance over the
original term thereof and to pay interest at the related Loan Interest Rate. The
Promissory Note does not permit negative amortization. No Loan is a Convertible
Mortgage Loan;

            (xxi) The origination and collection practices used by the Loan
Originator with respect to each Promissory Note and Mortgage have been in all
respects legal, proper, prudent and customary in the mortgage origination and
servicing industry. The Loan has been serviced by the Loan Originator and any
predecessor servicer in accordance with the terms of the Promissory Note. With
respect to escrow deposits and Escrow Payments, if any, all such payments are in
the possession of, or under the control of, the Loan Originator and there exist
no deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or Escrow Payments or
other charges or payments due the Loan Originator have been capitalized under
any Mortgage or the related Promissory Note and no such escrow deposits or
Escrow Payments are being held by the Loan Originator for any work on a
Mortgaged Property which has not been completed;

            (xxii) The Mortgaged Property is free of material damage and waste
and there is no proceeding pending for the total or partial condemnation
thereof;

            (xxiii) The Mortgage and related Promissory Note contain customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged Property of
the benefits of the security provided thereby, including, (a) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by
judicial foreclosure. The Mortgaged Property has not been subject to any
bankruptcy proceeding or foreclosure proceeding and the Borrower has not filed
for protection under applicable bankruptcy laws. There is no homestead or other
exemption available to the Borrower which would interfere with the right to sell
the Mortgaged Property at a trustee's sale or the right to foreclose the
Mortgage. The Borrower has not requested, and the Loan Originator has not
allowed to the Borrower any relief under the Soldiers and Sailors Civil Relief
Act of 1940;

                                       E-4
<PAGE>

            (xxiv) The Loan was underwritten in accordance with the underwriting
standards of the Loan Originator in effect at the time the Loan was originated;
and the Promissory Note and Mortgage are on forms acceptable to prudent mortgage
lending institutions in the secondary market;

            (xxv) The Promissory Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage on the Mortgaged
Property and the security interest of any applicable security agreement or
chattel mortgage referred to in (x) above;

            (xxvi) The Loan File contains an appraisal of the related Mortgaged
Property which satisfied the standards of Fannie Mae or Freddie Mac and was made
and signed, prior to the approval of the Loan application, by a qualified
appraiser, duly appointed by the Loan Originator, who had no interest, direct or
indirect in the Mortgaged Property or in any loan made on the security thereof,
whose compensation is not affected by the approval or disapproval of the Loan
and who met the minimum qualifications of Fannie Mae or Freddie Mac. Each
appraisal of the Loan was made in accordance with the relevant provisions of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989;

            (xxvii) In the event the Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the Mortgage, and no fees or
expenses are or will become payable by the Issuer to the trustee under the deed
of trust, except in connection with a trustee's sale after default by the
Borrower;

            (xxviii) No Loan contains provisions pursuant to which Monthly
Payments are (a) paid or partially paid with funds deposited in any separate
account established by the Loan Originator, the Borrower, or anyone on behalf of
the Borrower, (b) paid by any source other than the Borrower or (c) contains any
other similar provisions which may constitute a "buydown" provision. The Loan is
not a graduated payment mortgage loan and the Loan does not have a shared
appreciation or other contingent interest feature;

            (xxix) The Borrower has executed a statement to the effect that the
Borrower has received all disclosure materials required by applicable law with
respect to the making of fixed rate mortgage loans in the case of fixed-rate
Loans, and adjustable rate mortgage loans in the case of ARMs and rescission
materials with respect to Refinanced Loans, and such statement is and will
remain in the Loan File;

            (xxx) No Loan was made in connection with (a) the construction or
rehabilitation of a Mortgaged Property or (b) facilitating the trade-in or
exchange of a Mortgaged Property;

            (xxxi) The Loan Originator has no knowledge of any circumstances or
condition with respect to the Mortgage, the Mortgaged Property, the Borrower or
the Borrower's credit standing that can reasonably be expected to cause the Loan
to be an unacceptable investment, cause the Loan to become delinquent, or
adversely affect the value of the Loan;

            (xxxii) Each Loan listed on the Loan Schedule as being subject to a
Primary Mortgage Insurance Policy is and will be subject to a Primary Mortgage
Insurance Policy, issued

                                       E-5
<PAGE>

by a Qualified Insurer, which insures that portion of the Loan in excess of the
portion of the Appraised Value of the Mortgaged Property required by Fannie Mae.
All provisions of such Primary Insurance Policy have been and are being complied
with, such policy is in full force and effect, and all premiums due thereunder
have been paid. Any Mortgage subject to any such Primary Insurance Policy
obligates the Borrower thereunder to maintain such insurance and to pay all
premiums and charges in connection therewith. The Loan Interest Rate for the
Loan does not include any such insurance premium;

            (xxxiii) The Mortgaged Property is lawfully occupied under
applicable law; all inspections, licenses and certificates required to be made
or issued with respect to all occupied portions of the Mortgaged Property and,
with respect to the use and occupancy of the same, including but not limited to
certificates of occupancy, have been made or obtained from the appropriate
authorities;

            (xxxiv) No error, omission, misrepresentation, negligence, fraud or
similar occurrence with respect to a Loan has taken place on the part of any
person, including without limitation the Borrower, any appraiser, any builder or
developer, or any other party involved in the origination of the Loan or in the
application of any insurance in relation to such Loan;

            (xxxv) The Assignment of Mortgage is in recordable form and is
acceptable for recording under the laws of the jurisdiction in which the
Mortgaged Property is located;

            (xxxvi) Any principal advances made to the Borrower prior to the
Transfer Cutoff Date have been consolidated with the outstanding principal
amount secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having first lien priority by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to Fannie Mae and Freddie Mac. The consolidated principal amount does
not exceed the original principal amount of the Loan;

            (xxxvii) Except as set forth on the Loan Schedule, no Loan has a
balloon payment feature;

            (xxxviii) If the residential dwelling on the Mortgaged Property is a
condominium unit or a unit in a planned unit development (other than a de
minimis planned unit development) such condominium or planned unit development
project meets the eligibility requirements of Fannie Mae and Freddie Mac;

            (xl) Interest on each Loan is calculated on the basis of a 360-day
year consisting of twelve 30-day months;

            (xli) The Mortgaged Property is in material compliance with all
applicable environmental laws pertaining to environmental hazards including,
without limitation, asbestos, and neither the Loan Originator has received, nor
has the related Borrower notified the Loan Originator that it has received, any
notice of any violation or potential violation of such law; and

                                       E-6
<PAGE>

            (xlii) No Loan is in violation of the Home Ownership and Equity
Protection Act of 1994.

                                       E-7
<PAGE>


                                    EXHIBIT F

                               SERVICING ADDENDUM

      Section 4.01 Duties of the Servicer.

      The Servicer, as independent contract servicer, shall service and
administer the Loans in accordance with this Agreement and shall have full power
and authority, acting alone, to do or cause to be done any and all things in
connection with such servicing and administration which the Servicer may deem
necessary or desirable and consistent with the terms of this Agreement.

      The duties of the Servicer shall include collecting and posting of all
payments, responding to inquiries of Borrowers or by federal, state or local
government authorities with respect to the Loans, investigating delinquencies,
reporting tax information to Borrowers in accordance with its customary
practices and accounting for collections and furnishing monthly and annual
statements to the Indenture Trustee and the Initial Noteholder, with respect to
distributions, making Servicing Advances pursuant hereto. The Servicer shall
follow its customary standards, policies and procedures in performing its duties
as Servicer. The Servicer shall cooperate with the Indenture Trustee and furnish
to the Indenture Trustee with reasonable promptness information in its
possession as may be necessary or appropriate to enable the Indenture Trustee to
perform its tax reporting duties hereunder, if any.

      The Servicer shall give prompt notice to the Indenture Trustee and the
Initial Noteholder of any Proceeding, of which the Servicer has actual
knowledge, to (i) assert a claim against the Trust or (ii) assert jurisdiction
over the Trust.

      In the event of a Disposition or other removal of a Loan from the Trust
Estate, the Servicer's obligations under this Agreement shall be terminated with
respect to such Loan.

      The Servicer agrees that in the event that any Notes are outstanding after
the applicable Maturity Date and the Majority Noteholders may appoint a
successor servicer in accordance with the provisions of Section 9.02. The
Majority Noteholders may, by written notice to the Servicer and the Indenture
Trustee, elect to have the Servicer continue its duties hereunder after such
Maturity Date.

      Consistent with the terms of this Agreement, the Servicer may waive,
modify or vary any term of any Loan or consent to the postponement of strict
compliance with any such term or in any manner grant indulgence to any Borrower
if in the Servicer's reasonable and prudent determination such waiver,
modification, postponement or indulgence is not materially adverse to the Issuer
or the Noteholders; provided, however, that the Servicer shall not permit any
modification with respect to any Loan that would change the Loan Interest Rate,
defer or forgive the payment thereof or of any principal or interest payments,
reduce the outstanding principal amount (except for actual payments of
principal), make additional advances of additional principal or extend the final
maturity date on such Loan. Without limiting the generality of the foregoing,
the Servicer shall continue, and is hereby authorized and empowered, to execute
and deliver on behalf of itself, and the Issuer, all instruments of satisfaction
or cancellation, or of partial or full release, discharge and all other
comparable instruments, with respect to the Loans and with respect to the
Mortgaged Property. If reasonably required by the Servicer, the Issuer

                                       F-1
<PAGE>

shall furnish the Servicer with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.

      In servicing and administering the Loans, the Servicer shall employ
procedures including collection procedures and exercise the same care that it
customarily employs and exercises in servicing and administering mortgage loans
for its own account giving due consideration to accepted mortgage servicing
practices of prudent lending institutions and the Issuer's and the Noteholders'
reliance on the Servicer.

      Section 4.02 Collection of Loan Payments.

      Continuously from the date hereof until the principal and interest on all
Loans are paid in full, the Servicer shall proceed diligently to collect all
payments due under each Loan when the same shall become due and payable and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Primary Insurance Policy, follow such
collection procedures as it follows with respect to mortgage loans comparable to
the Loans and held for its own account. Further, the Servicer shall take special
care in ascertaining and estimating annual ground rents, taxes, assessments,
water rates, fire and hazard insurance premiums, mortgage insurance premiums,
and all other charges that, as provided in the Mortgage, will become due and
payable to the end that the installments payable by the Borrowers will be
sufficient to pay such charges as and when they become due and payable.

      Section 4.03 Realization Upon Defaulted Loans.

      (a) The Servicer shall use its best efforts, consistent with the
procedures that the Servicer would use in servicing loans for its own account,
to foreclose upon or otherwise comparably convert the ownership of such
Mortgaged Properties as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 4.01. The Servicer shall use its best efforts to realize
upon Defaulted Loans in such a manner as will maximize the receipt of principal
and interest by the Issuer, taking into account, among other things, the timing
of foreclosure proceedings; provided, however, that the Servicer shall not sell
any Defaulted Loan unless it has been directed to do so by the Majority
Noteholder. The foregoing is subject to the provisions that, in any case in
which Mortgaged Property shall have suffered damage, the Servicer shall not be
required to expend its own funds toward the restoration of such property in
excess of $2,000 unless it shall determine in its discretion (i) that such
restoration will increase the proceeds of liquidation of the related Loan to the
Issuer after reimbursement to itself for such expenses, and (ii) that such
expenses will be recoverable by the Servicer through Mortgage Insurance Proceeds
or Liquidation Proceeds from the related Mortgaged Property. In the event that
any payment due under any Loan is not paid when the same becomes due and
payable, or in the event the Borrower fails to perform any other covenant or
obligation under the Loan and such failure continues beyond any applicable grace
period, the Servicer shall take such action as it shall deem to be in the best
interest of the Issuer and the Noteholders. The Servicer shall notify the Issuer
and the Noteholders in writing of the commencement of foreclosure proceedings.
In such connection, the Servicer shall be responsible for all costs and expenses
incurred by it in any such proceedings; provided, however, that it shall be
entitled to reimbursement thereof from the related Mortgaged Property.

                                       F-2
<PAGE>

      (b) Notwithstanding the foregoing provisions of this Section 4.03, with
respect to any Loan as to which the Servicer has received actual notice of, or
has actual knowledge of, the presence of any toxic or hazardous substance on the
related Mortgaged Property the Servicer shall not either (i) obtain title to
such Mortgaged Property as a result of or in lieu of foreclosure or otherwise,
or (ii) otherwise acquire possession of, or take any other action, with respect
to, such Mortgaged Property if, as a result of any such action, the Issuer would
be considered to hold title to, to be a mortgagee-in-possession of, or to be an
owner or operator of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Servicer has also
previously determined, based on its reasonable judgment and a prudent report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:

            (1) such Mortgaged Property is in compliance with applicable
            environmental laws or, if not, that it would be in the best economic
            interest of the Issuer and the Noteholders to take such actions as
            are necessary to bring the Mortgaged Property into compliance
            therewith; and

            (2) there, are no circumstances present at such Mortgaged Property
            relating to the use, management or disposal of any hazardous
            substances, hazardous materials, hazardous wastes, or
            petroleum-based materials for which investigation, testing,
            monitoring, containment, clean-up or remediation could be required
            under any federal, state or local law or regulation, or that if any
            such materials are present for which such action could be required,
            that it would be in the best economic interest of the Issuer and the
            Noteholders to take such actions with respect to the affected
            Mortgaged Property.

      The cost of the environmental audit report contemplated by this Section
4.03 shall be advanced by the Servicer, subject to the Servicer's right to be
reimbursed therefor from the Collection Account as provided in Section 5.01(c).

      If the Servicer determines, as described above, that it is in the best
economic interest of the Issuer and the Noteholders to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Servicer shall take such action as it deems to be in the best economic
interest of the Issuer and the Noteholders. The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Servicer, subject
to the Servicer's right to be reimbursed therefor from the Collection Account as
provided in Section 5.01(c).

      (c) The Servicer shall determine, with respect to each Defaulted Loan,
when it has recovered, whether through trustee's sale, foreclosure sale or
otherwise, all amounts it expects to recover from or on account of such
Defaulted Loan, whereupon such Loan shall become a "Liquidated Loan" and shall
promptly deliver to the Initial Noteholder a related liquidation report with
respect to such Liquidated Loan.

                                       F-3
<PAGE>

      Section 4.04 Establishment of Escrow Accounts; Deposits in Escrow
Accounts.

      The Servicer shall segregate and hold all funds collected and received
pursuant to each Loan which constitute Escrow Payments separate and apart from
any of its own funds and general assets and shall establish and maintain one or
more Escrow Accounts, in accordance with the related Mortgage and applicable
law.

      The Servicer shall deposit in the Escrow Account or Accounts within two
(2) Business Days after receipt, and retain therein, (i) all Escrow Payments
collected on account of the Loans, for the purpose of effecting timely payment
of any such items as required under the terms of this Agreement, and (ii) all
Mortgage Insurance Proceeds which are to be applied to the restoration or repair
of any Mortgaged Property. The Servicer shall make withdrawals therefrom only to
effect such payments as are required under this Agreement, and for such other
purposes as shall be as set forth or in accordance with Section 4.06. The
Servicer shall be entitled to retain any interest paid on funds deposited in the
Escrow Account by the depository institution other than interest on escrowed
funds required by law to be paid to the Borrower and, to the extent required by
law, the Servicer shall pay interest on escrowed funds to the Borrower
notwithstanding that the Escrow Account is non-interest bearing or that interest
paid thereon is insufficient for such purposes.

      Section 4.05 Permitted Withdrawals From Escrow Account.

      Withdrawals from the Escrow Account may be made by the Servicer (i) to
effect timely payments of ground rents, taxes, assessments, water rates, hazard
insurance premiums, Primary Insurance Policy premiums, if applicable, and
comparable items, (ii) to reimburse the Servicer for any Servicing Advance made
by the Servicer with respect to a related Loan but only from amounts received on
the related Loan which represent late payments or collections of Escrow Payments
thereunder, (iii) to refund to the Borrower any funds as may be determined to be
overages, (iv) for transfer to the Collection Account in accordance with the
terms of this Agreement, (v) for application to restoration or repair of the
Mortgaged Property, (vi) to pay to the Servicer, or to the Borrower to the
extent required by law, any interest paid on the funds deposited in the Escrow
Account, or (vii) to clear and terminate the Escrow Account on the termination
of this Agreement.

      Section 4.06 Payment of Taxes, Insurance and Other Charges; Maintenance of
Primary Insurance Policies; Collections Thereunder.

      With respect to each Loan, the Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of Primary Insurance Policy premiums and fire and hazard insurance
coverage and shall obtain, from time to time, all bills for the payment of such
charges, including insurance renewal premiums and shall effect payment thereof
prior to the applicable penalty or termination date and at a time appropriate
for securing maximum discounts allowable, employing for such purpose deposits of
the Borrower in the Escrow Account which shall have been estimated and
accumulated by the Servicer in amounts sufficient for such purposes, as allowed
under the terms of the Mortgage and applicable law. To the extent that the
Mortgage does not provide for Escrow Payments, the Servicer shall determine

                                       F-4
<PAGE>

that any such insurance premium payments are made by the Borrower at the time
they first become due and any such tax payments are made in time to avoid loss
of the Mortgaged Property in a tax sale. The Servicer assumes full
responsibility for the timely payment of all such bills and shall effect
payments of all such bills prior to the termination of any such insurance
coverage or loss of any such Mortgaged Property in a tax sale irrespective of
the Borrower's faithful performance it the payment of same or the making of the
Escrow Payments and shall make advances from its own funds to effect such
payments.

      The Servicer shall maintain in full force and effect, a Primary Insurance
Policy, issued by a Qualified Insurer, with respect to each Loan for which such
coverage is required. Such coverage shall be maintained until the Loan-to-Value
Ratio of the related Loan is reduced to that amount for which Fannie Mae no
longer requires such insurance to be maintained. The Servicer will not cancel or
refuse to renew any Primary Insurance Policy, if any, in effect on the Closing
Date that is required to be kept in force under this Agreement unless a
replacement Primary Insurance Policy, if any, for such canceled or non-renewed
policy is obtained from and maintained with a Qualified Insurer. The Servicer
shall not take any action which would result in non-coverage under any
applicable Primary Insurance Policy of any loss which, but for the actions of
the Servicer, would have been covered thereunder. In connection with any
assumption or substitution agreement entered into or to be entered into pursuant
to Section 4.12, the Servicer shall promptly notify the insurer under the
related Primary Insurance Policy, if any, of such assumption or substitution of
liability in accordance with the terms of such policy and shall take all actions
which may be required by such insurer as a condition to the continuation of
coverage under the Primary Insurance Policy, if any. If such Primary Insurance
Policy is terminated as a result of such assumption or substitution of
liability, the Servicer shall obtain a replacement Primary Insurance Policy as
provided above.

      In connection with its activities as servicer, the Servicer agrees to
prepare and present, on behalf of itself, the Issuer and the Noteholders, claims
to the insurer under any Primary Insurance Policy in a timely fashion in
accordance with the terms of such policies and, in this regard, to take such
action as shall be necessary to permit recovery under any Primary Insurance
Policy respecting a defaulted Loan. Pursuant to Section 5.01, any amounts
collected by the Servicer under any Primary Insurance Policy shall be deposited
in the Collection Account.

      Section 4.07 Transfer of Accounts.

      The Servicer may transfer the Collection Account or the Escrow Account to
a different depository institution from time to time. Such transfer shall be
made only upon obtaining the consent of the Initial Noteholder, which consent
shall not be unreasonably withheld or delayed. In any case, the Collection
Account and the Escrow Account shall be an Eligible Account.

      Section 4.08 Maintenance of Hazard Insurance.

      The Servicer shall cause to be maintained for each Loan fire and hazard
insurance with extended coverage as is customary in the area where the Mortgaged
Property is located in an amount which is at least equal to the lesser of (i)
100% of the maximum insurable value of the improvements securing the Loan or
(ii) the outstanding principal balance of the Loan, in each case in an amount
not less than such amount as is necessary to prevent the Borrower and/or the

                                       F-5
<PAGE>

Issuer from becoming a co-insurer. If the Mortgaged Property is in an area
identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by
the Flood Emergency Management Agency as having special flood hazards and such
flood insurance has been made available, the Servicer will cause to be
maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the lesser
of (i) the outstanding principal balance of the Loan or (ii) the maximum amount
of insurance which is available under the National Flood Insurance Act of 1968
or the Flood Disaster Protection Act of 1973, as amended. The Servicer also
shall maintain on any Foreclosure Property, fire and hazard insurance with
extended coverage in an amount which is at least equal to the lesser of (i) 100%
of the maximum insurable value of the improvements which are a part of such
property and (ii) the outstanding principal balance of the related Loan at the
time it became a Foreclosure Property, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968 or the
Flood Disaster Protection Act of 1973, as amended, flood insurance in an amount
as provided above. Pursuant to Section 5.01, any amounts collected by the
Servicer under any such policies other than amounts to be deposited in the
Escrow Account and applied to the restoration or repair of the Mortgaged
Property or Foreclosure Property, or released to the Borrower in accordance with
the Servicer's normal servicing procedures, shall be deposited in the Collection
Account, subject to withdrawal pursuant to Section 5.01. Any cost incurred by
the Servicer in maintaining any such insurance shall not, for the purpose of
calculating distributions to the Issuer or the Noteholders, be added to the
unpaid principal balance of the related Loan, notwithstanding that the terms of
such Loan so permit. It is understood and agreed that no earthquake or other
additional insurance need be required by the Servicer or the Borrower or
maintained on property acquired in respect of the Loan, other than pursuant to
such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. All such policies shall be endorsed
with standard mortgagee clauses with loss payable to the Servicer, or upon the
direction of the Initial Noteholder to the Indenture Trustee, and shall provide
for at least thirty days prior written notice of any cancellation, reduction in
the amount of, or material change in, coverage to the Servicer. The Servicer
shall not interfere with the Borrower's freedom of choice in selecting either
his insurance carrier or agent, provided, however, that the Servicer shall not
accept any such insurance policies from insurance companies unless such
companies currently reflect a General Policy Rating of B:III or better in Best's
Key Rating Guide and are licensed to do business in the state wherein the
property subject to the policy is located.

      Section 4.09 Maintenance of Mortgage Impairment Insurance Policy.

      In the event that the Servicer shall obtain and maintain a mortgage
impairment or blanket policy issued by an issuer that has a Best rating of B:III
insuring against hazard losses on all of Mortgaged Properties securing the
Loans, then, to the extent such policy provides coverage in an amount equal to
the amount required pursuant to Section 4.08 and otherwise complies with all
other requirements of Section 4.08, the Servicer shall conclusively be deemed to
have satisfied its obligations as set forth in Section 4.08, it being understood
and agreed that such policy may contain a deductible clause, in which case the
Servicer shall, in the event that there shall not have been maintained on the
related Mortgaged Property or Foreclosure Property a policy complying with
Section 4.08, and there shall have been one or more losses which would have been
covered by such policy, deposit in the Collection Account the amount not
otherwise payable under the

                                       F-6
<PAGE>

blanket policy because of such deductible clause. In connection with its
activities as servicer of the Loans, the Servicer agrees to prepare and present,
on behalf of the Issuer and the Noteholders, claims under any such blanket
policy in a timely fashion in accordance with the terms of such policy. Upon
request of the Initial Noteholder, the Servicer shall cause to be delivered to
the Noteholders a certified true copy of such policy and a statement from the
insurer thereunder that such policy shall in no event be terminated or
materially modified without thirty days prior written notice to the Issuer and
the Noteholders.

      Section 4.10 Fidelity Bond, Errors and Omissions Insurance.

      The Servicer shall maintain, at its own expense, a blanket fidelity bond
and an errors and omissions insurance policy, with broad coverage with
financially responsible companies on all officers, employees or other persons
acting in any capacity with regard to the Loans to handle funds, money,
documents and papers relating to the Loans. The fidelity bond and errors and
omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond
and shall protect and insure the Servicer against losses, including forgery,
theft, embezzlement, fraud, errors and omissions and negligent acts of such
persons. Such fidelity bond shall also protect and insure the Servicer against
losses in connection with the failure to maintain any insurance policies
required pursuant to this Agreement and the release or satisfaction of a Loan
without having obtained payment in full of the indebtedness secured thereby. No
provision of this Section 4.10 requiring the fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The minimum coverage under any such
bond and insurance policy shall be at least equal to the corresponding amounts
required by Fannie Mae in the Fannie Mae Servicing Guide or by Freddie Mac in
the Freddie Mac Sellers' and Servicers' Guide. Upon request of the Initial
Noteholder, the Servicer shall cause to be delivered to the Noteholders a
certified true copy of the fidelity bond and insurance policy and a statement
from the surety and the insurer that such fidelity bond or insurance policy
shall in no event be terminated or materially modified without thirty days'
prior written notice to the Initial Noteholder.

      Section 4.11 Title, Management and Disposition of Foreclosure Property.

      In the event that title to the Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the person designated by the Issuer, or in the
event such person is not authorized or permitted to hold title to real property
in the state where the Foreclosure Property is located, or would be adversely
affected under the "doing business" or tax laws of such state by so holding
title, the deed or certificate of sale shall be taken in the name of such Person
or Persons as shall be consistent with an opinion of counsel obtained by the
Servicer from an attorney duly licensed to practice law in the state where the
Foreclosure Property is located. Any Person or Persons holding such title other
than the Issuer shall acknowledge in writing that such title is being held as
nominee for the benefit of the Issuer and the Noteholders.

      The Servicer shall either itself or through an agent selected by the
Servicer, manage, conserve, protect and operate each Foreclosure Property (and
may temporarily rent the same) in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in the
same manner that similar property in the same locality as the

                                       F-7
<PAGE>

Foreclosure Property is managed. If a REMIC election is or is to be made with
respect to the arrangement under which the Mortgage Loans and any Foreclosure
Property are held, the Servicer shall manage, conserve, protect and operate each
Foreclosure Property in a manner which does not cause such Foreclosure Property
to fail to qualify as "foreclosure property" within the meaning of Section
860G(a)(8) of the Code or result in the receipt by such REMIC of any "income
from non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the
Code or any "net income from foreclosure property" within the meaning of Section
860G(c)(2) of the Code. The Servicer shall cause each Foreclosure Property to be
inspected promptly upon the acquisition of title thereto and shall cause each
Foreclosure Property to be inspected at least annually thereafter. The Servicer
shall make or cause to be made a written report of each such inspection. Such
reports shall be retained in the Loan File and copies thereof shall be forwarded
by the Servicer to the Issuer. The Servicer shall use its best efforts to
dispose of the Foreclosure Property as soon as possible. The Servicer shall
report monthly to the Issuer and the Noteholders as to the progress being made
in selling such Foreclosure Property, and if, with the written consent of the
Initial Noteholder, a purchase money mortgage is taken in connection with such
sale, such purchase money mortgage shall name the Servicer as mortgagee, and a
separate servicing agreement between the Servicer and the Issuer shall be
entered into with respect to such purchase money mortgage. Notwithstanding the
foregoing, if a REMIC election is made with respect to the arrangement under
which the Loans and the Foreclosure Property are held, such Foreclosure Property
shall be disposed of within three years after the end of the tax year in which
such property becomes Foreclosure Property or such other period as may be
permitted under Section 860G(a)(8) of the Code.

      The final sale by the Servicer of any Foreclosure Property ("REO
Disposition") shall be carried out by the Servicer at such price and upon such
terms and conditions as the Servicer deems to be in the best interest of the
Issuer and the Noteholders only with the prior written consent of the Initial
Noteholder. If as of the date title to any Foreclosure Property was acquired by
the Issuer there were outstanding unreimbursed Servicing Advances with respect
to the Foreclosure Property, the Servicer, upon an REO Disposition of such
Foreclosure Property, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances from Liquidation Proceeds received in connection
with such REO Disposition. The Net Liquidation Proceeds from the REO Disposition
shall be deposited in the Collection Account promptly following receipt thereof
for distribution on the succeeding Payment Date in accordance with Section 5.01.

      Section 4.12 Assumption Agreements.

      The Servicer shall, to the extent it has knowledge of any conveyance or
prospective conveyance by any Borrower of the Mortgaged Property (whether by
absolute conveyance or by contract of sale, and whether or not the Borrower
remains or is to remain liable under the Promissory Note and/or the Mortgage),
exercise its rights to accelerate the maturity of such Loan under any
"due-on-sale" clause applicable thereto; provided, however, that the Servicer
shall not exercise any such rights if prohibited by law from doing so or if the
exercise of such rights would impair or threaten to impair any recovery under
the related Primary Insurance Policy, if any, and shall not be required to
exercise such rights if the transferee of the Mortgaged Property would qualify
for an assumption or substitution under the Servicer's underwriting guidelines.
If the Servicer reasonably believes it is unable under applicable law to enforce
such "due-on-sale" clause, the Servicer shall enter into an assumption agreement
with the person to whom the

                                       F-8
<PAGE>

Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to
which such person becomes liable under the Promissory Note and, to the extent
permitted by applicable state law, the Borrower remains liable thereon. Where an
assumption is allowed pursuant to this Section 4.12, the Servicer, with the
prior written consent of the insurer under the Primary Insurance Policy, if any,
is authorized to enter into a substitution of liability agreement with the
person to whom the Mortgaged Property has been conveyed or is proposed to be
conveyed pursuant to which the original Borrower is released from liability and
such Person is substituted as Borrower and becomes liable under the related
Promissory Note. Any such substitution of liability agreement shall be in lieu
of an assumption agreement.

      In connection with any such assumption or substitution of liability, the
Servicer shall follow the underwriting practices and procedures of prudent
mortgage lenders in the state in which the related Mortgaged Property is
located. With respect to an assumption or substitution of liability, Loan
Interest Rate, the amount of the Monthly Payment, and the final maturity date of
such Promissory Note may not be changed. The Servicer shall notify the Issuer
and the Noteholders that any such substitution of liability or assumption
agreement has been completed and shall forward to the Custodian the original of
any such substitution of liability or assumption agreement, which document shall
be added to the related Loan File and shall, for all purposes, be considered a
part of such Loan File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Servicer for entering into
an assumption or substitution of liability agreement shall be deemed additional
Servicing Compensation.

      Notwithstanding the foregoing paragraphs of this Section or any other
provision of this Agreement, the Servicer shall not be deemed to be in default,
breach or any other violation of its obligations hereunder by reason of any
assumption of a Loan by operation of law or any assumption which the Servicer
may be restricted by law from preventing, for any reason whatsoever. For
purposes of this Section 4.12, the term "assumption" is deemed to also include a
sale of the Mortgaged Property subject to the Mortgage that is not accompanied
by an assumption or substitution of liability agreement.

      Section 4.13 Satisfaction of Mortgages and Release of Loan Files.

      Upon the payment in full of any Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer will immediately notify the Issuer and the Initial
Noteholder by a certification of a servicing officer of the Servicer (a
"Servicing Officer"), which certification shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Collection Account pursuant to
Section 5.01 have been or will be so deposited, and shall request execution of
any document necessary to satisfy the Loan and delivery to it of the portion of
the Loan File held by Custodian. Upon receipt of a Request for Release and
Receipt, the Custodian shall promptly release the related mortgage documents to
the Servicer in accordance with the Custodial Agreement and the Servicer shall
prepare and process any satisfaction or release. No expense incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Collection Account or the Issuer.

      In the event the Servicer satisfies or releases a Mortgage without having
obtained payment in full of the indebtedness secured by the Mortgage or should
it otherwise prejudice any

                                       F-9
<PAGE>

right the Issuer or the Noteholders may have under the mortgage instruments, the
Servicer, upon written demand, shall remit to the Issuer the then outstanding
principal balance of the related Loan by deposit thereof in the Collection
Account. The Servicer shall maintain the fidelity bond insuring the Servicer
against any loss it may sustain with respect to any Loan not satisfied in
accordance with the procedures set forth herein.

      From time to time and as appropriate for the servicing or foreclosure of
the Loan, including for this purpose collection under any Primary Insurance
Policy, the Custodian shall, upon request of the Servicer and delivery to the
Custodian of a servicing receipt signed by a Servicing Officer, release the
requested portion of the Loan File held by the Custodian to the Servicer. Such
servicing receipt shall obligate the Servicer to return the related Mortgage
documents to the Custodian when the need therefor by the Servicer no longer
exists, unless the Loan has been liquidated and the Liquidation Proceeds
relating to the Loan have been deposited in the Collection Account or the Loan
File or such document has been delivered to an attorney, or to a public trustee
or other public official as required by law, for purposes of initiating or
pursuing legal action or other proceedings for the foreclosure of the Mortgaged
Property either judicially or non judicially, and the Servicer has delivered to
the Custodian a certificate of a Servicing Officer certifying as to the name and
address of the Person to which such Loan File or such document was delivered and
the purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Loan was liquidated, the servicing receipt
shall be released by the Custodian to the Servicer.

      Section 4.14 Advances by the Servicer.

      (a) Not later than the close of business on the Business Day preceding
each Remittance Date, the Servicer shall deposit in the Collection Account an
amount equal to all payments not previously advanced by the Servicer, whether or
not deferred pursuant to Section 4.01, of principal (due after the Transfer
Cut-off Date) and interest not allocable to the period prior to the Transfer
Cut-off Date, at the Loan Interest Rate net of the Servicing Fee, which were due
on a Loan and delinquent at the close of business on the related Remittance
Date; provided, however, that the Servicer shall not be required to deposit such
amount if the amount on deposit in the Collection Account on that Remittance
Date (exclusive of any Monthly Advance required to be effected pursuant to this
Section 4.14) is at least sufficient to fund in full the items described in
Sections 5.01(c)(3)(i) through 5.01(c)(3)(vi) hereof on the related Payment
Date, and, if the amount on deposit in the Collection Account is less than the
sum of such items, the Servicer shall only be required to deposit an amount
equal to the shortfall. The obligation of the Servicer to make such Monthly
Advances is mandatory, notwithstanding any other provision of this Agreement,
and, with respect to any Loan or Foreclosure Property, shall continue until a
Final Recovery Determination in connection therewith; provided that,
notwithstanding anything herein to the contrary, no Monthly Advance shall be
required to be made hereunder by the Servicer if such Monthly Advance would, if
made, constitute a Nonrecoverable Monthly Advance. The determination by the
Servicer that it has made a Nonrecoverable Monthly Advance or that any proposed
Monthly Advance, if made, would constitute a Nonrecoverable Monthly Advance,
shall be evidenced by an Officers' Certificate delivered to the Issuer and the
Indenture Trustee.

                                      F-10
<PAGE>

      (b) The Servicer will pay all out-of-pocket costs and expenses incurred in
the performance of its servicing obligations including, but not limited to, the
cost of (i) Preservation Expenses, (ii) any enforcement or judicial proceedings,
including foreclosures, (iii) inspection fees and expenses and (iv) the
management and liquidation of Foreclosure Property but is only required to pay
such costs and expenses to the extent the Servicer reasonably believes such
costs and expenses will increase Net Liquidation Proceeds on the related Loan.
Each such amount so paid will constitute a "Servicing Advance." The Servicer may
recover Servicing Advances (x) from the Borrowers to the extent permitted by the
Loans, from Liquidation Proceeds realized upon the liquidation of the related
Loan and (y) as provided in Sections 5.01(c)(1)(ii) or 5.01(c)(3)(i) hereof. In
no case may the Servicer recover Servicing Advances from principal and interest
payments on any Loan or from any amounts relating to any other Loan except as
provided pursuant to Sections 5.01(c)(1)(ii) or 5.01(c)(3)(i) hereof.

      Section 4.15 Servicing Compensation.

      As compensation for its services hereunder, the Servicer shall, subject to
Section 5.01(c), be entitled to withdraw from the Collection Account or to
retain from interest payments on the Loans the amounts provided for as the
Servicer's Servicing Fee. Additional servicing compensation in the form of
assumption fees, non-sufficient fund fees, modification fees, substitution fees
and other ancillary income, as provided in Section 4.12, and late payment
charges or otherwise shall be retained by the Servicer to the extent not
required to be deposited in the Collection Account. The Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder and shall not be entitled to reimbursement therefor except
as specifically provided for.

      Section 4.16 Notification of Adjustments.

      On each Adjustment Date, the Servicer shall make interest rate adjustments
for each ARM in compliance with the requirements of the related Mortgage and
Promissory Note. The Servicer shall execute and deliver the notices required by
each Mortgage and Promissory Note regarding interest rate adjustments. The
Servicer also shall provide timely notification to the Noteholders of all
applicable data and information regarding such interest rate adjustments and the
Servicer's methods of implementing such interest rate adjustments. Upon the
discovery by the Servicer or the any Noteholder that the Servicer has failed to
adjust a Loan Interest Rate or a Monthly Payment pursuant to the terms of the
related Promissory Note and Mortgage, the Servicer shall immediately deposit in
the Collection Account from its own funds the amount of any interest loss caused
thereby without reimbursement therefor.

      Section 4.17 Statement as to Compliance.

      The Servicer will deliver to the Issuer, the Indenture Trustee and the
Initial Noteholder not later than 90 days following the end of each fiscal year
of the Servicer, which as of the Closing Date ends on April 30, an Officers'
Certificate stating, as to each signatory thereof, that (i) a review of the
activities of the Servicer during the preceding year and of performance under
this Agreement has been made under such officers' supervision and (ii) to the
best of such officers' knowledge, based on such review, the Servicer has
fulfilled all of its obligations under

                                      F-11
<PAGE>

this Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof.

      Section 4.18 Independent Public Accountants' Servicing Report.

      Not later than 90 days following the end of each fiscal year of the
Servicer, the Servicer at its expense shall cause a firm of independent public
accountants (which may also render other services to the Servicer) which is a
member of the American Institute of Certified Public Accountants to furnish a
statement to the Issuer, the Indenture Trustee and the Initial Noteholder to the
effect that such firm has examined certain documents and records relating to the
servicing of the Loans under this Agreement and that, on the basis of such
examination conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers, such firm confirms that such servicing
has been conducted in compliance with such pooling and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers
requires it to report.

      Section 4.19 Access to Certain Documentation.

      The Servicer shall provide to the Office of Thrift Supervision, the FDIC
and any other federal or state banking or insurance regulatory authority that
may exercise authority over the Issuer or any Noteholder access to the
documentation regarding the Loans serviced by the Servicer required by
applicable laws and regulations. Such access shall be afforded without charge,
but only upon reasonable request and during normal business hours at the offices
of the Servicer. In addition, access to the documentation will be provided to
the Issuer or any Noteholder and any Person identified to the Servicer by the
Issuer or any Noteholder without charge, upon reasonable request during normal
business hours at the offices of the Servicer.

      Section 4.20 Reports and Returns to be Filed by the Servicer.

      The Servicer shall file information reports with respect to the receipt of
mortgage interest received in a trade or business, reports of foreclosures and
abandonments of any Mortgaged Property and information returns relating to
cancellation of indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code. Such reports shall be
in form and substance sufficient to meet the reporting requirements imposed by
such Sections 6050H, 6050J and 6050P of the Code.

      Section 4.21 Compliance with REMIC Provisions.

      If a REMIC election has been made with respect to the arrangement under
which the Loans and Foreclosure Property are held, the Servicer shall not take
any action, cause the REMIC to take any action or fail to take (or fail to cause
to be taken) any action that, under the REMIC Provisions, if taken or not taken,
as the case may be, could (i) endanger the status of the REMIC as a REMIC or
(ii) result in the imposition of a tax upon the REMIC (including but not limited
to the tax on "prohibited transactions" as defined in Section 860F(a)(2) of the
Code and the tax on "contributions" to a REMIC set forth in Section 860G(d) of
the Code) unless the Servicer has received an Opinion of Counsel (at the expense
of the party seeking to take such

                                      F-12
<PAGE>

action) to the effect that the contemplated action will not endanger such REMIC
status or result in the imposition of any such tax.

      Section 4.22 Subservicing Agreements Between Servicer and Subservicers.

      Subject to Sections 4.24 and 4.25, the Servicer may enter into
Subservicing Agreements for any servicing and administration of Loans with any
institution which is in compliance with the laws of each state necessary to
enable it to perform its obligations under such Subservicing Agreement and is an
Eligible Servicer. The Servicer shall give notice to the Indenture Trustee and
the Initial Noteholder of the appointment of any Subservicer which is not an
Affiliate of the Servicer and shall furnish to the Indenture Trustee and the
Initial Noteholder a copy of the Subservicing Agreement (along with any
modifications thereto) between the Servicer and any Subservicer that is not an
Affiliate of the Servicer. For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Loans when any Subservicer has received such
payments. Any such Subservicing Agreement shall be consistent with and not
violate the provisions of this Agreement.

      Section 4.23 Successor Subservicers.

      Upon notice to the Indenture Trustee and the Initial Noteholder (except if
the Subservicer is an Affiliate of the Servicer), the Servicer shall be entitled
to terminate any Subservicing Agreement in accordance with the terms and
conditions of such Subservicing Agreement and to either itself directly service
the related Loans or enter into a Subservicing Agreement with a successor
Subservicer which qualifies under Section 4.22.

      Section 4.24 Liability of Servicer.

      The Servicer shall not be relieved of its obligations under this Agreement
notwithstanding any Subservicing Agreement or any of the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or otherwise, and the Servicer shall be obligated to the same extent
and under the same terms and conditions as if it alone were servicing and
administering the Loans. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer and nothing contained in such Subservicing Agreement shall be deemed
to limit or modify this Agreement. The Trust shall not indemnify the Servicer
for any losses due to the Servicer's negligence.

      Section 4.25 No Contractual Relationship Between Subservicer and Indenture
Trustee or the Securityholders.

      Any Subservicing Agreement and any other transactions or services relating
to the Loans involving a Subservicer shall be deemed to be between the
Subservicer and the Servicer alone and no party hereto nor the Securityholders
shall be deemed parties thereto and shall have no claims, rights, obligations,
duties or liabilities with respect to any Subservicer except as set forth in
Section 4.26.

                                      F-13
<PAGE>

      Section 4.26 Assumption or Termination of Subservicing Agreement by
Successor Servicer.

      In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
a successor Servicer pursuant to Section 9.02, it is understood and agreed that
the Servicer's rights and obligations under any Subservicing Agreement then in
force between the servicer and a Subservicer may be assumed or terminated by the
successor Servicer at its option without the payment of any fee (notwithstanding
any contrary provision in any Subservicing Agreement).

      The Servicer shall, upon request of the successor Servicer, but at the
expense of the Servicer, deliver to the assuming party documents and records
relating to each Subservicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effect the
orderly and efficient transfer of the Subservicing Agreements to the assuming
party, without the payment of any fee by the successor Servicer, notwithstanding
any contrary provision in any Subservicing Agreement.

                                      F-14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.63
<SEQUENCE>23
<FILENAME>c91685exv10w63.txt
<DESCRIPTION>AMENDMENT NO. 1 TO SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.63

                                 AMENDMENT NO. 1
                                       TO
                          SALE AND SERVICING AGREEMENT

            This AMENDMENT NO. 1 (the "Amendment") dated as of August 6, 2004,
to the Sale and Servicing Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Sale and Servicing Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation ("OOMC"), in its capacity as loan
originator (in such capacity, the "Loan Originator") and as servicer (in such
capacity, the "Servicer"), Option One Loan Warehouse Corporation (the
"Depositor") and Wells Fargo Bank Minnesota, National Association, as indenture
trustee (the "Indenture Trustee"). Capitalized terms used herein but not
specifically defined herein shall have the meanings given to such terms in the
Sale and Servicing Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, OOMC, as the Servicer and as the Loan Originator,
the Depositor and the Indenture Trustee are parties to the Sale and Servicing
Agreement.

            (2) The Issuer has requested that the Revolving Period be extended
for an additional 364 days and the Majority Noteholder has consented to such
extension.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Sale and Servicing Agreement as set
forth herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, clause
(i) of the definition of "Revolving Period" set forth in Section 1.01 of the
Sale and Servicing Agreement is hereby restated in its entirety to read "(i)
August 5, 2005".

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof upon the execution hereof by all of the parties
hereto and the execution and delivery of the Consent to Amendment of Sale and
Servicing Agreement attached hereto.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Sale and Servicing
Agreement, as amended by this Amendment, constitute legal, valid and binding
obligations of such Person enforceable against such Person in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally and
general equitable principles.

      SECTION 4. Reference to and the Effect on the Sale and Servicing
Agreement.

<PAGE>

            (a) On and after the effective date of this Amendment, each
reference in the Sale and Servicing Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Sale and Servicing
Agreement and each reference to the Sale and Servicing Agreement in any
certificate delivered in connection therewith, shall mean and be a reference to
the Sale and Servicing Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Sale and Servicing Agreement is hereby ratified
and confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

      SECTION 6. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                       -2-
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                 OPTION ONE OWNER TRUST 2003-4,
                                 as Issuer

                                 By: Wilmington Trust Company, not in its
                                     individual capacity, but solely as
                                     Owner Trustee

                                 By: /s/ Mary Kay Pupillo
                                     -----------------------------------------
                                         Name: Mary Kay Pupillo
                                         Title: Assistant Vice President

                                 OPTION ONE LOAN WAREHOUSE
                                 CORPORATION, as Depositor

                                 By: /s/ C.R. Fulton
                                     -----------------------------------------
                                     Name: Charles R. Fulton
                                     Title: Assistant Secretary

                                 OPTION ONE MORTGAGE CORPORATION, as
                                 Loan Originator and as Servicer

                                 By: /s/ C.R. Fulton
                                     -----------------------------------------
                                     Name: Charles R. Fulton
                                     Title: Vice President

                                 Signature Page
                                       to
                 Amendment No. 1 to Sale and Servicing Agreement

<PAGE>

                                 WELLS FARGO BANK MINNESOTA,
                                 NATIONAL ASSOCIATION, as Indenture Trustee

                                 By: /s/ Reid Denny
                                     ------------------
                                     Name: Reid Denny
                                     Title: Vice President

                                 Signature Page
                                       to
                 Amendment No. 1 to Sale and Servicing Agreement
<PAGE>

                   CONSENT TO AMENDMENT TO SERIES SUPPLEMENT

            The undersigned, being the Majority Noteholder, hereby consents to
the terms and conditions of Amendment No 1 to the Sale and Servicing Agreement
dated as of August 6, 2004 (the "Amendment"), to which this Consent is attached
and the execution thereof by the Issuer, the Depositor, OOMC and the Indenture
Trustee. Capitalized terms used in the preceding sentence shall have the
meanings given to such terms in the Amendment.

                                               BANK ONE, N.A.

                                               By: /s/ Beth M. Pravanzana
                                                   ----------------------
                                                   Name: Beth M. Provanzana
                                                   Title: Vice President

                                 Signature Page
                                       to
           Consent to Amendment No. 1 to Sale and Servicing Agreement
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.64
<SEQUENCE>24
<FILENAME>c91685exv10w64.txt
<DESCRIPTION>AMENDMENT NO. 2 TO SALE AND SERVICING AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.64

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 2
                                       TO
                          SALE AND SERVICING AGREEMENT

            This AMENDMENT NO. 2 (the "Amendment") dated as of August 24, 2004,
to the Sale and Servicing Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Sale and Servicing Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation ("OOMC"), in its capacity as loan
originator (in such capacity, the "Loan Originator") and as servicer (in such
capacity, the "Servicer"), Option One Loan Warehouse Corporation (the
"Depositor") and Wells Fargo Bank Minnesota, National Association, as indenture
trustee (the "Indenture Trustee"). Capitalized terms used herein but not
specifically defined herein shall have the meanings given to such terms in the
Sale and Servicing Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, OOMC, as the Servicer and as the Loan Originator,
the Depositor and the Indenture Trustee are parties to the Sale and Servicing
Agreement.

            (2) The Issuer has requested that the Note Purchase Agreement be
amended to increase the Maximum Note Principal Balance and the Majority
Noteholder has consented to such increase.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Sale and Servicing Agreement as set
forth herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, clause
(b)(l) of the definition of "Nonutilization Fee" set forth in Section 1.01 of
the Sale and Servicing Agreement is hereby restated in its entirety to read "(1)
the product of 1.02 and the Maximum Note Principal Balance in effect during such
month".

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof upon the execution hereof by all of the parties
hereto and the execution and delivery of the Consent to Amendment of Sale and
Servicing Agreement attached hereto.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Sale and Servicing
Agreement, as amended by this Amendment, constitute legal, valid and binding
obligations of such Person enforceable against such Person in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally and
general equitable principles.

<PAGE>

      SECTION 4. Reference to and the Effect on the Sale and Servicing
Agreement.

            (a) On and after the effective date of this Amendment, each
reference in the Sale and Servicing Agreement to "this Agreement", "hereunder",
"hereof, "herein" or words of like import referring to the Sale and Servicing
Agreement and each reference to the Sale and Servicing Agreement in any
certificate delivered in connection therewith, shall mean and be a reference to
the Sale and Servicing Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Sale and Servicing Agreement is hereby ratified
and confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

      SECTION 6. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                      -2-
<PAGE>

                   IN WITNESS WHEREOF, the parties have executed this Amendment
as of the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: /s/ Mary Kay Pupillo
                                            ------------------------------------
                                            Name: MARY KAY PUPILLO
                                            Title:  Assistant Vice President

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Loan Originator and as Servicer

                                        By: ____________________________________
                                            Name:
                                            Title:

                                 Signature Page
                                       to

Amendment No. 2 to Sale and Servicing Agreement
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                             OPTION ONE OWNER TRUST 2003-4,
                             as Issuer

                             By: Wilmington Trust Company, not in its
                                 individual capacity, but solely as
                                 Owner Trustee

                             BY: ____________________________________
                                 Name:
                                 Title:

                             OPTION ONE LOAN WAREHOUSE
                             CORPORATION, as Depositor

                             By: /s/ Charles R. Fulton
                                 ------------------------------------
                                 Name: Charles R. Fulton
                                 Title: Assistant Secretary

                             OPTION ONE MORTGAGE CORPORATION, as
                             Loan Originator and as Servicer

                             By: /s/ Charles R. Fulton
                                 ------------------------------------
                                 Name: Charles R. Fulton
                                 Title: Vice President

                                 Signature Page
                                       to

Amendment No. 2 to Sale and Servicing Agreement

<PAGE>

                                        WELLS FARGO BANK, NATIONAL
                                        ASSOCIATION, as Indenture Trustee

                                        By: /s/ Reid Denny
                                            -----------------------------
                                            Name:  Reid Denny
                                            Title: Vice President

                                 Signature Page
                                       to

Amendment No. 2 to Sale and Servicing Agreement

<PAGE>

                    CONSENT TO AMENDMENT TO SERIES SUPPLEMENT

            The undersigned, being the Majority Noteholder, hereby consents to
the terms and conditions of Amendment No. 2 to the Sale and Servicing Agreement
dated as of August 24, 2004 (the "Amendment"), to which this Consent is attached
and the execution thereof by the Issuer, the Depositor, OOMC and the Indenture
Trustee. Capitalized terms used in the preceding sentence shall have the
meanings given to such terms in the Amendment.

                                        BANK ONE, N.A.

                                        By: /s/ Daniel J. Clarke
                                            ------------------------------------
                                            Name: Daniel J. Clarke, Jr.
                                            Title: Managing Director

                                 Signature Page
                                       to
                           Consent to Amendment No. 2

to Sale and Servicing Agreement
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.65
<SEQUENCE>25
<FILENAME>c91685exv10w65.txt
<DESCRIPTION>INDENTURE
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.65

================================================================================

                                    INDENTURE

                                     between

                          OPTION ONE OWNER TRUST 2003-4
                                    as Issuer

                                       and

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
                              as Indenture Trustee

                            Dated as of August 8,2003

                          OPTION ONE OWNER TRUST 2003-4
                             MORTGAGE-BACKED NOTES
================================================================================

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                                TABLE OF CONTENTS

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ARTICLE I   DEFINITIONS                                                                                   2
      Section 1.01    Definitions                                                                         2
      Section 1.02    Rules of Construction                                                               7
ARTICLE II  GENERAL PROVISIONS WITH RESPECT TO THE NOTES                                                  8
      Section 2.01    Method of Issuance and Form of Notes                                                8
      Section 2.02    Execution, Authentication, Delivery and Dating                                      8
      Section 2.03    Registration; Registration of Transfer and Exchange                                 9
      Section 2.04    Mutilated, Destroyed, Lost or Stolen Notes                                         10
      Section 2.05    Persons Deemed Noteholders                                                         11
      Section 2.06    Payment of Principal and/or Interest; Defaulted Interest                           11
      Section 2.07    Cancellation                                                                       12
      Section 2.08    Conditions Precedent to the Authentication of the Notes                            12
      Section 2.09    Release of Collateral                                                              14
      Section 2.10    Additional Note Principal Balance                                                  14
      Section 2.11    Tax Treatment                                                                      14
      Section 2.12    Limitations on Transfer of the Notes                                               14
ARTICLE III COVENANTS                                                                                    15
      Section 3.01    Payment of Principal and/or Interest                                               15
      Section 3.02    Maintenance of Office or Agency                                                    15
      Section 3.03    Money for Payments to Be Held in Trust                                             16
      Section 3.04    Existence                                                                          17
      Section 3.05    Protection of Collateral                                                           17
      Section 3.06    Negative Covenants                                                                 18
      Section 3.07    Performance of Obligations; Servicing of Loans                                     19
      Section 3.08    Reserved                                                                           20
      Section 3.09    Annual Statement as to Compliance                                                  20
      Section 3.10    Covenants of the Issuer                                                            21
      Section 3.11    Servicer's Obligations                                                             21
      Section 3.12    Restricted Payments                                                                21
      Section 3.13    Treatment of Notes as Debt for All Purposes                                        21
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                                TABLE OF CONTENTS
                                   (continued)

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      Section 3.14    Notice of Events of Default                                                        21
      Section 3.15    Further Instruments and Acts                                                       21
ARTICLE IV  SATISFACTION AND DISCHARGE                                                                   21
      Section 4.01    Satisfaction and Discharge of Indenture                                            21
      Section 4.02    Application of Trust Money                                                         22
      Section 4.03    Repayment of Moneys Held by Paying Agent                                           23
ARTICLE V   REMEDIES                                                                                     23
      Section 5.01    Events of Default                                                                  23
      Section 5.02    Acceleration of Maturity; Rescission and Annulment                                 25
      Section 5.03    Collection of Indebtedness and Suits for Enforcement by Indenture Trustee          25
      Section 5.04    Remedies; Priorities                                                               27
      Section 5.05    Optional Preservation of the Collateral                                            29
      Section 5.06    Limitation of Suits                                                                29
      Section 5.07    Unconditional Rights of Noteholders to Receive Principal and/or Interest           30
      Section 5.08    Restoration of Rights and Remedies                                                 30
      Section 5.09    Rights and Remedies Cumulative                                                     30
      Section 5.10    Delay or Omission Not a Waiver                                                     30
      Section 5.11    Control by Noteholders                                                             30
      Section 5.12    Waiver of Past Defaults                                                            31
      Section 5.13    Undertaking for Costs                                                              31
      Section 5.14    Waiver of Stay or Extension Laws                                                   32
      Section 5.15    Action on Notes                                                                    32
      Section 5.16    Performance and Enforcement of Certain Obligations                                 32
ARTICLE VI  THE INDENTURE TRUSTEE                                                                        33
      Section 6.01    Duties of Indenture Trustee                                                        33
      Section 6.02    Rights of Indenture Trustee                                                        34
      Section 6.03    Individual Rights of Indenture Trustee                                             35
      Section 6.04    Indenture Trustee's Disclaimer                                                     35
      Section 6.05    Notices of Default                                                                 35
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                                TABLE OF CONTENTS
                                   (continued)

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      Section 6.06    Reports by Indenture Trustee to Holders                                            35
      Section 6.07    Compensation and Indemnity                                                         35
      Section 6.08    Replacement of Indenture Trustee                                                   36
      Section 6.09    Successor Indenture Trustee by Merger                                              37
      Section 6.10    Appointment of Co-Indenture Trustee or Separate Indenture Trustee                  37
      Section 6.11    Eligibility                                                                        38
ARTICLE VII  NOTEHOLDERS' LISTS AND REPORTS                                                              39
      Section 7.01    Issuer to Furnish Indenture Trustee Names and Addresses of Noteholders             39
      Section 7.02    Preservation of Information                                                        39
      Section 7.03    144A Information                                                                   39
ARTICLE VIII ACCOUNTS, DISBURSEMENTS AND RELEASES                                                        39
      Section 8.01    Collection of Money                                                                39
      Section 8.02    Trust Accounts; Distributions                                                      40
      Section 8.03    General Provisions Regarding Trust Accounts                                        40
      Section 8.04    The Paying Agent                                                                   41
      Section 8.05    Release of Collateral                                                              41
      Section 8.06    Opinion of Counsel                                                                 41
ARTICLE IX   SUPPLEMENTAL INDENTURES                                                                     42
      Section 9.01    Supplemental Indentures Without the Consent of the Noteholders                     42
      Section 9.02    Supplemental Indentures with Consent of Noteholders                                43
      Section 9.03    Execution of Supplemental Indentures                                               44
      Section 9.04    Effect of Supplemental Indentures                                                  44
      Section 9.05    Reference in Notes to Supplemental Indentures                                      44
ARTICLE X    REDEMPTION OF NOTES; PUT OPTION                                                             45
      Section 10.01   Redemption                                                                         45
      Section 10.02   Form of Redemption Notice                                                          45
      Section 10.03   Notes Payable on Redemption Date                                                   45
      Section 10.04   Put Option                                                                         45
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                                TABLE OF CONTENTS
                                   (continued)

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      Section 10.05   Form of Put Option Notice                                                          46
      Section 10.06   Notes Payable on Put Date                                                          46
ARTICLE XI MISCELLANEOUS                                                                                 46
      Section 11.01   Compliance Certificates and Opinions, etc.                                         46
      Section 11.02   Form of Documents Delivered to Indenture Trustee                                   46
      Section 11.03   Acts of Noteholders                                                                47
      Section 11.04   Notices, etc., to Indenture Trustee and Issuer                                     48
      Section 11.05   Notices to Noteholders; Waiver                                                     48
      Section 11.06   Effect of Headings and Table of Contents                                           49
      Section 11.07   Successors and Assigns                                                             49
      Section 11.08   Separability                                                                       49
      Section 11.09   Benefits of Indenture                                                              49
      Section 11.10   Legal Holidays                                                                     49
      Section 11.11   GOVERNING LAW                                                                      49
      Section 11.12   Counterparts                                                                       49
      Section 11.13   Recording of Indenture                                                             49
      Section 11.14   Trust Obligation                                                                   50
      Section 11.15   No Petition                                                                        50
      Section 11.16   Inspection                                                                         50
      Section 11.17   Limitation on Liability                                                            50
EXHIBIT A
EXHIBIT F-1
EXHIBIT B-2
EXHIBIT B-3
EXHIBIT C
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<PAGE>

                                    INDENTURE

            INDENTURE dated as of August 8, 2003 (the "Indenture"), between
OPTION ONE OWNER TRUST 2003-4, a Delaware statutory trust, as Issuer (the
"Issuer"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as Indenture
Trustee (the "Indenture Trustee").

                                WITNESSETH THAT:

            In consideration of the mutual covenants herein contained, the
Issuer has duly authorized the execution and delivery of this Indenture to
provide for the issuance of Notes, issuable as provided in this Indenture. All
covenants and agreements made by the Issuer herein are for the benefit and
security of the Noteholders.

                                 GRANTING CLAUSE

            Subject to the terms of this Indenture, the Issuer hereby Grants on
the Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit
of the Noteholders, all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to: (i) such Loans as from time to time are
subject to the Sale and Servicing Agreement as listed in the Loan Schedule, as
the same may be amended or supplemented on each Transfer Date and by the removal
of Deleted Loans and Unqualified Loans and by the addition of Qualified
Substitute Loans, together with the Servicer's Loan Files and the Custodial Loan
Files relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in the Mortgaged Properties, (iii) all payments in respect of interest
and principal with respect to each Loan received on or after the related
Transfer Cut-off Date, (iv) such assets as from time to time are identified as
Foreclosure Property, (v) the Distribution Account, the Collection Account and
the Transfer Obligation Account, including, without limitation, all amounts and
funds on deposit therein and credited thereto and all financial assets (as
defined in Section 8-102(s) of the UCC) held in or credited to such accounts,
including, without limitation, all Permitted Investments (including, without
limitation, all security entitlements (as defined in Section 8-102(17) of the
UCC) of the Issuer therein), (vi) lenders' rights under all Mortgage Insurance
Policies and to any Mortgage Insurance Proceeds, (vii) Net Liquidation Proceeds
and Released Mortgaged Property Proceeds, (viii) all right, title and interest
of the Trust (but none of the obligations) in and to the obligations of Hedging
Counterparties under Hedging Instruments; (ix) all right, title and interest of
each of the Depositor, the Loan Originator and the Trust in and under the Basic
Documents including, without limitation, the obligations of the Loan Originator
under the Loan Purchase and Contribution Agreement and/or the Master Disposition
Confirmation Agreement, and all proceeds of any of the foregoing, (x) all right,
title and interest of the Issuer in and to the Sale and Servicing Agreement,
(including the Issuer's right to cause the Loan Originator to repurchase Loans
from the Issuer under certain circumstances described therein), (xi) all other
Property of the Trust from time to time and (xii) all present and future claims,
demands, causes of action and choses in action in respect of any or all of the
foregoing and all payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all proceeds of
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash and noncash proceeds (each as defined in Section 9-102(a) of
the UCC), accounts, accounts receivable, notes, drafts, acceptances, chattel
paper, checks, deposit

<PAGE>

accounts, securities accounts, insurance proceeds, condemnation awards, payment
intangibles, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing (collectively, the "Collateral").

            The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, and to secure compliance with the provisions of this Indenture, all as
provided in this Indenture.

            The Indenture Trustee, as Indenture Trustee on behalf of the
Noteholders, acknowledges such Grant, accepts the trusts hereunder and agrees to
perform its duties required in this Indenture to the best of its ability to the
end that the interests of the Noteholders may adequately and effectively be
protected.

                                    ARTICLE I

                                   DEFINITIONS

      Section 1.01 Definitions, (a) Except as otherwise specified herein, the
following terms have the respective meanings set forth below for all purposes of
this Indenture.

            Act" has the meaning specified in Section 11.03 (a) hereof.

            Additional Note Principal Balance" As defined in the Sale and
Servicing Agreement.

            "Administration Agreement" means the Administration Agreement dated
as of August 8, 2003, between the Issuer and the Administrator.

            "Administrator" means Option One Mortgage Corporation, or any
successor Administrator under the Administration Agreement.

            "Authorized Officer" means, with respect to the Issuer, any officer
of the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers
delivered by the Owner Trustee to the Indenture Trustee on the Closing Date (as
such list may be modified or supplemented from time to time thereafter) and, so
long as the Administration Agreement is in effect, any Vice President or more
senior officer of the Administrator who is authorized to act for the
Administrator in matters relating to the Issuer and to be acted upon by the
Administrator pursuant to the Administration Agreement and who is identified on
the list of Authorized Officers delivered by the Administrator to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).

            "Basic Documents" As defined in the Sale and Servicing Agreement.

            "Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit C to the Trust Agreement.

                                       2

<PAGE>

            "Change of Control" means the acquisition by any Person, or two or
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of outstanding shares of voting stock of the Option One
Mortgage Corporation at any time if after giving effect to such acquisition (i)
such Person or Persons owns twenty percent (20%) or more of such outstanding
voting stock or (ii) H&R Block, Inc. does not own more than fifty percent (50%)
of such outstanding shares of voting stock.

            "Clean-up Call Date" As defined in the Sale and Servicing Agreement.

            "Closing Date" means August 8, 2003.

            "Collateral" has the meaning specified in the Granting Clause of
this Indenture.

            "Commission" means the Securities and Exchange Commission.

            "Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Indenture is located,
for note transfer purposes, at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479, Attention: Option One Owner Trust 2003-4, telecopy number:
(612) 667-6282, telephone number: (800) 344-5128, and for all other purposes, at
9062 Old Annapolis Road, Columbia, Maryland 21045, Attention: Option One Owner
Trust 2003-4, telecopy number: (410) 715-2380, telephone number: (410) 884-2000,
or at such other address as the Indenture Trustee may designate from time to
time by notice to the Noteholders and the Issuer, or the principal corporate
trust office of any successor Indenture Trustee at the address designated by
such successor Indenture Trustee by notice to the Noteholders and the Issuer.

            "Default" means any occurrence that is, or with notice or the lapse
of time or both would become, an Event of Default.

            "Depositor" shall mean Option One Loan Warehouse Corporation, a
Delaware corporation; in its capacity as depositor under the Sale and Servicing
Agreement, or any successor in interest thereto.

            "Depository Institution" means any depository institution or trust
company, including the Indenture Trustee, that (a) is incorporated under the
laws of the United States of America or any State thereof, (b) is subject to
supervision and examination by federal or state banking authorities and (c) has
outstanding unsecured commercial paper or other short-term unsecured debt
obligations that are rated at a rating to which the Majority Noteholders consent
in writing.

            "Event of Default" has the meaning specified in Section 5.01 hereof.

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Executive Officer" means, with respect to (i) the Depositor, the
Servicer, the Loan Originator or any Affiliate of any of them, the President,
any Vice President or the

                                       3

<PAGE>

Treasurer of such corporation; and with respect to any partnership, any general
partner thereof, (ii) the Note Registrar, any Responsible Officer of the
Indenture Trustee, (iii) any other corporation, the Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, President, Executive Vice
President, any Vice President, the Secretary or the Treasurer of such entity and
(iv) any partnership, any general partner thereof.

            "Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to or receive
thereunder or with respect thereto.

            "Holder" means the Person in whose name a Note is registered on the
Note Register.

            "ICA Owner" means "beneficial owner" as such term is used in Section
3(c)(1) of the Investment Company Act of 1940, as amended (other than any
persons who are excluded from such term or from the 100-beneficial owner test of
Section 3(c)(l) by law or regulations adopted by the Securities and Exchange
Commission.

            "Indenture" means this Indenture and any amendments hereto.

            "Indenture Trustee" means Wells Fargo Bank Minnesota, National
Association, a national banking association, as Indenture Trustee under this
Indenture, or any successor Indenture Trustee hereunder.

            "Issuer" means Option One Owner Trust 2003-4.

            "Issuer Order" and "Issuer Request" mean a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.

            "Loan Originator" means Option One Mortgage Corporation, a
California corporation.

            "Majority Certificateholders" As defined in the Sale and Servicing
Agreement.

            "Maturity Date" As defined in the Note Purchase Agreement.

            "Maximum Note Principal Balance" As defined in the Note Purchase
Agreement.

            "Note" means any Note authorized by and authenticated and delivered
under this Indenture.

                                       4

<PAGE>

            "Note Interest Rate" As defined in the Note Purchase Agreement.

            "Note Principal Balance" As defined in the Sale and Servicing
Agreement.

            "Note Purchase Agreement" means the Note Purchase Agreement dated as
of August 8, 2003, among the Issuer, the Depositor, the conduit purchasers party
thereto, the committed purchasers party thereto and Bank One, NA (Main Office
Chicago).

            "Note Redemption Amount" As defined in the Sale and Servicing
Agreement.

            "Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.03 hereof.

            "Noteholder" means the Person in whose name a Note is registered on
the Note Register.

            "Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer or the Administrator, under the circumstances described
in, and otherwise complying with, the applicable requirements of Section 11.01
hereof, and delivered to the Indenture Trustee. Unless otherwise specified, any
reference in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the issuer or the Administrator.

            "Opinion of Counsel" means one or more written opinions of counsel
who may, except as otherwise expressly provided in this Indenture, be an
employee of or counsel to the Issuer, and which opinion or opinions shall be
addressed to the Indenture Trustee, as Indenture Trustee, and shall comply with
any applicable requirements of Section 11.01 hereof and shall be in form and
substance satisfactory to the Initial Noteholder.

            "Outstanding" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:

                  (i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;

                  (ii) Notes or portions thereof the payment for which money in
the necessary amount has theretofore been deposited with the Indenture Trustee
or any Paying Agent in trust for the Noteholders (provided, however, that if
such Notes are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision for such notice satisfactory to the
Indenture Trustee has been made); and

                  (iii) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are held
by a bona fide purchaser; provided, however, that in determining whether the
Noteholders representing, the requisite Percentage Interests of the Outstanding
Notes have given any request, demand, authorization, direction, notice, consent
or waiver hereunder or under any Basic Document, Notes owned by the Issuer, any
other obligor upon the Notes, the Depositor or any Affiliate of any of the
foregoing Persons shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Indenture

                                       5

<PAGE>

Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the
Indenture Trustee actually knows to be owned in such manner shall be
disregarded. Notes owned in such manner that have been pledged in good faith may
be regarded as Outstanding if the pledgee certifies to the Indenture Trustee (y)
that the pledgee has the right so to act with respect to such Notes and (z) that
the pledgee is not the Issuer, any other obligor upon the Notes, the Depositor
or any Affiliate of any of the foregoing Persons.

            "Owner Trustee" means Wilmington Trust Company, not in its
individual capacity but solely as Owner Trustee under the Trust Agreement, or
any successor Owner Trustee under the Trust Agreement.

            "Paying Agent" means (unless the Paying Agent is the Servicer) a
Person that meets the eligibility standards for the Indenture Trustee specified
in Section 6.11 hereof and is authorized by the Issuer to make payments to and
distributions from the Collection Account and the Distribution Account,
including payment of principal of or interest on the Notes on behalf of the
Issuer. The initial Paying Agent shall be the Servicer; provided that if the
Servicer is terminated as Paying Agent for any reason, the Indenture Trustee
shall be the Paying Agent until another Paying Agent is appointed by the Initial
Noteholder pursuant to Section 8.04 herein. The Indenture Trustee shall be
entitled to reasonable additional compensation for assuming the role of Paying
Agent.

            "Payment Date" As defined in the Sale and Servicing Agreement.

            "Percentage Interest" means, with respect to any Note and as of any
date of determination, the percentage equal to a fraction, the numerator of
which is the principal balance of such Note as of such date of determination and
the denominator, of which is the Note Principal Balance.

            "Person" As defined in the Sale and Servicing Agreement.

            "Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 hereof in lieu of a mutilated,
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.

            "Proceeding" means any suit in equity, action at law or other
judicial or administrative proceeding.

            "Record Date" As defined in the Sale and Servicing Agreement.

            "Redemption Date" means in the case of a redemption of the Notes
pursuant to Section 10.01 hereof, the Payment Date specified by the Servicer
pursuant to such Section 10.01.

            "Registered Holder" means the Person in the name of which a Note is
registered on the Note Register on the applicable Record Date.

                                       6

<PAGE>

            "Revolving Period" As defined in the Sale and Servicing Agreement.

            "Sale Agent" has the meaning assigned to such term in Section 5.11
hereof.

            "Sale and Servicing Agreement" means the Sale and Servicing
Agreement dated as of August 8, 2003, among the Issuer, the Depositor, the
Servicer, the Loan Originator and the Indenture Trustee on behalf of the
Noteholders.

            "Servicer" shall mean Option One Mortgage Corporation, in its
capacity as servicer under the Sale and Servicing Agreement, and any successor
servicer thereunder.

            "State" means any one of the States of the United States of America
or the District of Columbia.

            "Termination Price" As defined in the Sale and Servicing Agreement.

            "Transfer Date" As defined in the Sale and Servicing Agreement.

            "Trust Agreement" means the Trust Agreement dated as of August 8,
2003 between the Depositor and the Owner Trustee.

            "Trust Certificate" has the meaning assigned to such term in Section
1.1 of the Trust Agreement.

            "Trust Indenture Act" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.

            (b)   Except as otherwise specified herein or as the context may
otherwise require, capitalized terms used but not otherwise defined herein have
the respective meanings set forth in the Sale and Servicing Agreement for all
purposes of this Indenture.

      Section 1.02 Rules of Construction. Unless the context otherwise requires:

                  (i) a term has the meaning assigned to it;

                  (ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;

                  (iii) "or" is not exclusive;

                  (iv) "including" means including without limitation;

                  (v) words in the singular include the plural and words in the
plural include the singular; and

                  (vi) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented (as provided in such agreements) and includes (in the
case of agreements or instruments) references to all

                                       7

<PAGE>

attachments thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.

                                   ARTICLE II

                  GENERAL PROVISIONS WITH RESPECT TO THE NOTES

      Section 2.01 Method of Issuance and Form of Notes.

            (a)   The Notes shall be designated generally as the "Option One
Owner Trust 2003-4 Mortgage-Backed Notes" of the Issuer. Each Note shall bear
upon its face the designation so selected for the Notes. All Notes shall be
identical in all respects except for the denominations thereof. All Notes issued
under this Indenture shall be in all respects equally and ratably entitled to
the benefits thereof without preference, priority or distinction on account of
the actual time or times of authentication and delivery, all in accordance with
the terms and provisions of this Indenture.

            The Notes may be typewritten, printed, lithographed or engraved or
produced by any combination of these methods, all as determined by the officers
executing such Notes, as evidenced by their execution of such Notes.

            Each Note shall be dated the date of its authentication.

            The terms of the Notes shall be set forth in this Indenture.

            The Notes shall be in definitive form and shall bear a legend
substantially in the form of Exhibit C attached hereto.

      Section 2.02 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee or the Administrator. The signature of any such Authorized Officer on
the Notes may be manual or facsimile.

            Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Owner Trustee or the Administrator
shall bind the Issuer, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Notes or did not hold such offices at the date of such Notes.

            Subject to the satisfaction of the conditions set forth in Section
2.08 hereof, the Indenture Trustee shall upon Issuer Order authenticate and
deliver the Notes.

            The Notes that are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer on the Closing Date shall be dated as
of such Closing Date. All other Notes that are authenticated after the Closing
Date for any other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issued in such denominations as may be agreed
by the Issuer and the Initial Noteholder.

                                       8

<PAGE>

            No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.

      Section 2.03 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of the Note
Registrar.

            If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Noteholders and the
principal amounts and number of the Notes.

            Upon surrender for registration of transfer of any Note at the
office or agency of the Issuer to be maintained as provided in Section 3.02
hereof, the Issuer shall execute, and the Indenture Trustee shall authenticate
and the Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate Note Principal Balance.

            At the option of the Holder, Notes may be exchanged for other Notes
in any authorized denominations, of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.

            All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.

            Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in the form attached to the form of Note attached as Exhibit A hereto
duly executed by the Holder thereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agents' Medallion Program
("STAMP").

                                       9

<PAGE>

            No service charge shall be made to a Noteholder for any registration
of transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 9.05 hereof not involving any transfer.

            The preceding provisions of this Section 2.03 notwithstanding, the
Issuer shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.

      Section 2.04 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Issuer and Indenture Trustee such
security or indemnity as may reasonably be required by it to hold the Issuer and
the Indenture Trustee, as applicable, harmless, then, in the absence of notice
to the Issuer, the Note Registrar or the Indenture Trustee that such Note has
been acquired by a bona fide purchaser, an Authorized Officer of the Owner
Trustee or the Administrator on behalf of the Issuer shall execute, and upon its
written request the Indenture Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become or within seven days shall be
due and payable, or shall have been called for redemption, instead of issuing a
replacement Note, the Issuer may pay such destroyed, lost or stolen Note when so
due or payable or upon the Redemption Date without surrender thereof. If. after
the, delivery of such replacement Note or payment of a destroyed, lost or stolen
Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of
the original Note in lieu of which such replacement Note was issued presents for
payment such original Note, the Issuer shall be entitled to recover such
replacement Note (or such payment) from the Person to which it was delivered or
any Person taking such replacement Note from such Person to which such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and the Issuer and the Indenture Trustee shall be entitled to
recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in
connection therewith.

            Upon the issuance of any replacement Note under this Section 2.04,
the Issuer may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee) connected therewith.

            Every replacement Note issued pursuant to this Section 2.04 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.

                                       10

<PAGE>

            The provisions of this Section 2.04 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.

      Section 2.05 Persons Deemed Noteholders. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in the name of
which any Note is registered (as of the day of determination) as the Noteholder
for the purpose of receiving payments of principal of and interest, if any, on
such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and none of the Issuer, the Indenture Trustee or any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.

      Section 2.06 Payment of Principal and/or Interest; Defaulted Interest.

            (a)   The Notes shall accrue interest at the Note Interest Rate, and
such interest shall be payable on each Payment Date, subject to Section 3.01
hereof. Any installment of interest or principal, if any, payable on any Note
that is punctually paid or duly provided for by the Issuer on the applicable
Payment Date shall be paid to the Person in the name of which such Note (or one
or more Predecessor Notes) is registered on the next preceding Record Date based
on the Percentage Interest represented by its respective Note, without
preference or priority of any kind, and, except as otherwise provided in the
next succeeding sentence, shall be made by wire transfer of immediately
available funds to the account of such Noteholder, if such Noteholder shall own
of record Notes having a Percentage Interest of at least 20% and shall have so
notified the Paying Agent and the Indenture Trustee, and otherwise by check
mailed to the address of such Noteholder appearing in the Note Register no less
than five days preceding the related Record Date. The final installment of
principal payable with respect to such Note shall be payable as provided in
Section 2.06(b) below. The funds represented by any such checks returned
undelivered shall be held in accordance with Section 3.03 hereof.

            (b)   The principal of each Note shall be payable in installments on
each Payment Date as provided in Sections 5.01 and 5.02 of the Sale and
Servicing Agreement and Section 5.04(b) hereof. Notwithstanding the foregoing,
the entire unpaid principal amount of the Notes shall be due and payable, if not
previously paid, on the earlier of (1) the Maturity Date, (ii) the Redemption
Date, (iii) the Final Put Date and (iv) the date on which an Event of Default
shall have occurred and be continuing, if the Indenture Trustee or the Majority
Noteholders shall have declared the Notes to be immediately due and payable in
the manner provided in Section 5.02 hereof.

            All principal payments on the Notes shall be made pro rata to the
Noteholders based on their respective Percentage Interests. The Paying Agent
shall notify the Person in the name of which a Note is registered at the close
of business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be provided
to Noteholders as set forth in Section 10.02 hereof.

                                       11

<PAGE>

      Section 2.07 Cancellation. All Notes surrendered for payment, registration
of transfer, exchange or redemption shall, if surrendered to any Person other
than the Indenture Trustee, be delivered to the Indenture Trustee and shall
promptly be canceled by the Indenture Trustee. The Issuer may at any time
deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall promptly be canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 2.07, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Order that they be destroyed or returned to it; provided, however, that such
Issuer Order is timely and the Notes have not been previously disposed of by the
Indenture Trustee.

      Section 2.08 Conditions Precedent to the Authentication of the Notes. The
Notes may be authenticated by the Indenture Trustee upon receipt by the
Indenture Trustee of the following:

            (a)   An Issuer Order authorizing authentication of such Notes by
the Indenture Trustee;

            (b)   All of the items of Collateral which are to be delivered
pursuant to the Basic Documents to the Indenture Trustee or its designee by the
related Closing Date shall have been delivered;

            (c)   An executed counterpart of each Basic Document;

            (d)   One or more Opinions of Counsel addressed to the Indenture
Trustee to the effect that:

                  (i) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been complied with;

                  (ii) the Owner Trustee has power and authority to execute,
deliver and perform its obligations under the Trust Agreement;

                  (iii) the Issuer has been duly formed, is validly existing as
a statutory trust under the laws of the State of Delaware, 12 Del. C. Section
3801 et seq. and has power, authority and legal right to execute and deliver
this Indenture, the Note Purchase Agreement, the Custodial Agreement, the
Administration Agreement and the Sale and Servicing Agreement;

                  (iv) assuming due authorization, execution and delivery hereof
by the Indenture Trustee, the Indenture is a valid, legal and binding obligation
of the Issuer, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent or preferential
conveyance and other similar laws of general application affecting the rights of
creditors generally and to general principles of equity (regardless of whether
such enforcement is considered in a Proceeding in equity or at law);

                  (v) the Notes, when executed and authenticated as provided
herein and delivered against payment therefor, will be the valid, legal and
binding obligations of the Issuer

                                       12

<PAGE>

pursuant to the terms of this Indenture, entitled to the benefits of this
Indenture, and will be enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent or
preferential conveyance and other similar laws of general application affecting
the rights of creditors generally and to general principles of equity
(regardless of whether such enforcement is considered in a Proceeding in equity
or at law);

                  (vi) Reserved;

                  (vii) this Indenture is not required to be qualified under the
Trust Indenture Act;

                  (viii) no authorization, approval or consent of any
governmental body having jurisdiction in the premises which has not been
obtained by the Issuer is required to be obtained by the Issuer for the valid
issuance and delivery of the Notes, except that no opinion need be expressed
with respect to any such authorizations, approvals or consents as may be
required under any state securities or "blue sky" laws; and

                  (ix) any other matters that the Indenture Trustee may
reasonably request.

            (e)   An Officer's Certificate complying with the requirements of
Section 11.01 hereof and stating that:

                  (i) the Issuer is not in Default under this Indenture and the
issuance of the Notes applied for will not result in any breach of any of the
terms, conditions or provisions of, or constitute a default under, the Trust
Agreement, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any order
of any court or administrative agency entered in any Proceeding to which the
Issuer is a party or by which it may be bound or to which it may be subject, and
that all conditions precedent provided in this Indenture relating to the
authentication and delivery of the Notes applied for have been complied with;

                  (ii) the Issuer is the owner of all of the Loans, has not
assigned any interest or participation in the Loans (or, if any such interest or
participation has been assigned, it has been released) and has the right to
Grant all of the Loans to the Indenture Trustee;

                  (iii) the Issuer has Granted to the Indenture Trustee all of
its right, title and interest in and to the Collateral, and has delivered or
caused the same to be delivered to the Indenture Trustee; and

                  (iv) all conditions precedent provided for in this Indenture
relating to the authentication of the Notes have been complied with.

      Section 2.09 Release of Collateral.

            (a)   Except as otherwise provided by the terms of the Basic
Documents, the Indenture Trustee shall release the Collateral from the lien of
this Indenture only upon receipt of an Issuer Request accompanied by the written
consent of the Majority Noteholders in accordance

                                       13

<PAGE>

with the procedures set forth in the Custodial Agreement. To the extent it deems
necessary, the Indenture Trustee may seek direction from the Initial Noteholder
with regard to the release of Collateral other than the Custodial Loan File.

            (b)   The Indenture Trustee shall, if requested by the Servicer,
temporarily release or cause the Custodian temporarily to release to the
Servicer the Custodial Loan File pursuant to the provisions of Section 6 of the
Custodial Agreement upon compliance by the Servicer with the provisions thereof;
provided, however, that the Custodian's records shall indicate the Issuer's
pledge to the Indenture Trustee under the Indenture.

      Section 2.10 Additional Note Principal Balance. In the event of payment of
Additional Note Principal Balance by the Noteholders as provided in Section
2.01(c) of the Sale and Servicing Agreement, each Noteholder shall, and is
hereby authorized to, record on the schedule attached to its Note the date and
amount of any Additional Note Principal Balance advanced by it, and each
repayment thereof; provided that failure to make any such recordation on such
schedule or any error in such schedule shall not adversely affect any
Noteholder's rights with respect to its Additional Note Principal Balance and
its right to receive interest payments in respect of the Additional Note
Principal Balance held by such Noteholder.

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture Trustee and the Issuer; provided that failure by a
Noteholder to make such recordation on its Note or any error in such notation
shall not adversely affect any Noteholder's rights with respect to its Note
Principal Balance and its right to receive principal and interest payments in
respect thereof.

      Section 2.11 Tax Treatment. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that for all purposes,
including federal, state and local income, single business and franchise tax
purposes, the Notes will qualify as indebtedness of the Issuer secured by the
Collateral. The Issuer, by entering into this Indenture, and each Noteholder, by
its acceptance of a Note, agree to treat the Notes for all purposes, including
federal, state and local income, single business and franchise tax purposes, as
indebtedness of the Issuer. The Indenture Trustee will have no responsibility
for filing or preparing any tax returns.

      Section 2.12 Limitations on Transfer of the Notes.

            (a)   The Notes have not been and will not be registered under the
Securities Act and will not be listed on any exchange. No transfer of a Note
shall be made unless such transfer is made pursuant to an effective registration
statement under the Securities Act and all applicable state securities laws or
is exempt from the registration requirements under the Securities Act and such
state securities laws. In order to assure compliance with the Securities Act and
state securities laws, any transfer of a Note shall be made (A) in reliance on
Rule 144A under the Securities Act, in which case, the Indenture Trustee shall
require that the transferor deliver a certification substantially in the form of
Exhibit B-1 hereto and that the transferee deliver a certification substantially
in the form of Exhibit B-3 hereto, or (B) to an institutional "accredited
investor" within the meaning of Rule 501(a)(l), (2), (3) or (7) of Regulation D
under the Securities Act that is not a "qualified institutional buyer," in which
case the Indenture Trustee

                                       14

<PAGE>

shall require that the transferee deliver a certification substantially in the
form of Exhibit B-2 hereto. The Indenture Trustee shall not make any transfer or
re-registration of the Notes if after such transfer or re-registration, there
would be more than five Noteholders. Each Noteholder shall, by its acceptance of
a Note, be deemed to have represented and warranted that the number of ICA
Owners with respect to all of its Notes shall not exceed four.

            (b)   The Note Registrar shall not register the transfer of any Note
unless the Indenture Trustee has received a certificate from the transferee to
the effect that either (1) the transferee is not an employee benefit plan or
other retirement plan or arrangement subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended, or Section 4975 of the
Internal Revenue Code of 1986, as amended (each, a "Plan"), and is not acting on
behalf of or investing the assets of a Plan or (ii) if the transferee is a Plan
or is acting on behalf of or investing the assets of a Plan, the conditions for
exemptive relief under at least one of the following prohibited transaction
class exemptions have been satisfied: Prohibited Transaction Class Exemption
("PTCE") 96-23 (relating to transactions effected by an "in-house asset
manager"), PTCE 95-60 (relating to transactions involving insurance company
general accounts), PTCE 91-38 (relating to transactions involving bank
collective investment funds), PTCE 90-1 (relating to transactions involving
insurance company pooled separate accounts) and PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager").

                                   ARTICLE III

                                    COVENANTS

      Section 3.01 Payment of Principal and/or Interest. The Issuer will duly
and punctually pay (or will cause to be paid duly and punctually) the principal
of and interest on the Notes in accordance with the terms of the Notes, this
Indenture and the Sale and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a payment to any Noteholder of interest and/or
principal shall be considered as having been paid by the Issuer to such
Noteholder for all purposes of this Indenture. The Notes shall be non-recourse
obligations of the Issuer and shall be limited in right of payment to amounts
available from the Collateral, as provided in this Indenture. The Issuer shall
not otherwise be liable for payments on the Notes. If any other provision of
this Indenture shall be deemed to conflict with the provisions of this Section
3.01 the provisions of this Section 3.01 shall control.

      Section 3.02 Maintenance of Office or Agency. The Indenture Trustee shall
maintain at the Corporate Trust Office an office or agency where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Indenture Trustee shall give prompt written notice to the Issuer of
the location, and of any change in the location, of any such office or agency.

      Section 3.03 Money for Payments to Be Held in Trust. As provided in
Section 8.02(a) and (b) hereof, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the
Distribution Account pursuant to Section 8.02(c) hereof shall be made on behalf
of the Issuer by the Indenture Trustee or by the Paying Agent, and to amounts so
withdrawn from the Distribution Account for payments of Notes shall be paid over
to the Issuer except as provided in this Section 3.03.

                                       15

<PAGE>

      Any Paying Agent shall be appointed by the Initial Noteholder with written
notice thereof to the Indenture Trustee. The Issuer shall not appoint any Paying
Agent (other than the Indenture Trustee or Servicer) which is not, at the time
of such appointment, a Depository Institution.

      The Issuer will cause each Paying Agent other than the Indenture Trustee
to execute and deliver to the Indenture Trustee an instrument in which such
Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:

                  (i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed of
as herein provided and pay such sums to such Persons as herein provided;

                  (ii) give the Indenture Trustee notice of any Default by the
Issuer (or any other obligor upon the Notes) of which it has actual knowledge in
the making of any payment required to be made with respect to the Notes;

                  (iii) at any time during the continuance of any such Default,
upon the written request of the Majority Noteholders or the Indenture Trustee,
forthwith pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;

                  (iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a Paying Agent
at the time of its appointment; and

                  (v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable reporting
requirements in connection therewith; provided, however, that with respect to
withholding and reporting requirements applicable to original issue discount (if
any) on the Notes, the Issuer shall have first provided the calculations
pertaining thereto to the Indenture Trustee.

            The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.

            Subject to applicable laws with respect to escheat of funds or
abandoned property, any money held by the Indenture Trustee or any Paying Agent
in trust for the payment of any amount due with respect to any Note and
remaining unclaimed for two years after such amount has become due and payable
shall be discharged from such trust and be paid to the Issuer on Issuer Request;
and the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Issuer for payment thereof (but only to the extent of the
amounts so paid to the Issuer), and all liability of the Indenture Trustee or
such Paying Agent with respect to such trust

                                       16
<PAGE>

money shall thereupon cease; provided, however, that the Indenture Trustee or
such Paying Agent, before being required to make any such repayment, shall at
the expense and direction of the Issuer cause to be published, once in a
newspaper of general circulation in the City of New York customarily published
in the English language on each Business Day, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Issuer. The Indenture Trustee shall also
adopt and employ any other reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Noteholders
whose Notes have been called but have not been surrendered for redemption or
whose right to or interest in moneys due and payable but not claimed at the last
address of record for each such Noteholder determinable from the records of the
Indenture Trustee or of any Paying Agent. Any costs and expenses of the
Indenture Trustee and the Paying Agent incurred in the holding of such funds
shall be charged against such funds. Monies so held shall not bear interest.

      Section 3.04 Existence. (a) Subject to subparagraph (b) of this Section
3.04, the Issuer will keep in full effect its existence, rights and franchises
as a statutory trust under the laws of the State of Delaware (unless it becomes,
or any successor Issuer hereunder is or becomes, organized under the laws of any
other State or of the United States of America, in which case the Issuer will
keep in full effect its existence, rights and franchises under the laws of such
other jurisdiction) and will obtain and preserve its qualification to do
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes and the Collateral. The Issuer shall comply in all respects with the
covenants contained in the Trust Agreement, including without limitation, the
"special purpose entity" set forth in Section 4.1 thereof.

            (a) Any successor to the Owner Trustee appointed pursuant to Section
10.2 of the Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.

            (b) Upon any consolidation or merger of or other succession to the
Owner Trustee, the Person succeeding to the Owner Trustee under the Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.

      Section 3.05 Protection of Collateral. The Issuer will from time to time
execute and deliver all such reasonable supplements and amendments hereto and
all such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:

                  (i) provide further assurance with respect to the Grant of all
or any portion of the Collateral;

                  (ii) maintain or preserve the lien and security interest (and
the priority thereof) of this Indenture or carry out more effectively the
purposes hereof;

                                       17
<PAGE>

                  (iii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;

                  (iv) enforce any rights with respect to the Collateral; and

                  (v) preserve and defend title to the Collateral and the rights
of the Indenture Trustee and the Noteholders in such Collateral against the
claims of all Persons and parties.

            The Issuer hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.05.

      Section 3.06 Negative Covenants. Without the written consent of the
Majority Noteholders, so long as any Notes are Outstanding, the Issuer shall
not:

                  (i) except as expressly permitted by the Basic Documents,
sell, transfer, exchange or otherwise dispose of any of the properties or assets
of the Issuer, including those included in any part of the Trust Estate, unless
directed to do so by the Noteholders as permitted herein;

                  (ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than amounts
properly withheld from such payments under the Code) or assert any claim against
any present or former Noteholder by reason of the payment of the taxes levied or
assessed upon any part of the Trust Estate;

                  (iii) engage in any business or activity other than as
expressly permitted by this Indenture and the other Basic Documents, other than
in connection with, or relating to, the issuance of Notes pursuant to this
Indenture, or amend this Indenture as in effect on the Closing Date other than
in accordance with Article IX hereof;

                  (iv) issue any debt obligations except under this Indenture;

                  (v) incur or assume any indebtedness or guaranty any
indebtedness of any Person, except for such indebtedness as may be incurred by
the Issuer in connection with the issuance of the Notes pursuant to this
Indenture;

                  (vi) dissolve or liquidate in whole or in part or merge or
 consolidate with any other Person;

                  (vii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any Person to be
released from any covenants or obligations with respect to the Notes except as
may expressly be permitted hereby, (B) except as provided in the Basic
Documents, 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 Trust Estate or any part thereof or any interest therein or the
proceeds thereof (other than tax liens, mechanics' liens and other liens that
arise by operation of law, in each case, on any Mortgaged Property and

                                       18
<PAGE>

arising solely as a result of an action or omission of the related Borrowers) or
(C) except as provided in the Basic Documents, permit any Person other than
itself, the Owner Trustee and the Noteholders to have any right, title or
interest in the Trust Estate;

                  (viii) remove the Administrator without the prior written
consent of the Majority Noteholders; or

                  (ix) take any other action or fail to take any action which
may cause the Trust to be taxable as (a) an association pursuant to Section 7701
of the Code and the corresponding regulations, or (b) as a taxable mortgage pool
pursuant to Section 7701(i) of the Code.

      Section 3.07 Performance of Obligations; Servicing of Loans.

            (a) The Issuer will not take any action and will use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's material covenants or obligations under any
instrument or agreement included in the Collateral or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
expressly provided in the Basic Documents or such other instrument or agreement.

            (b) The Issuer may contract with or otherwise obtain the assistance
of other Persons (including, without limitation, the Administrator under the
Administration Agreement) to assist it in performing its duties under this
Indenture, and any performance of such duties by a Person identified to the
Indenture Trustee in an Officer's Certificate of the Issuer shall be deemed to
be action taken by the Issuer. Initially, the Issuer has contracted with the
Servicer and the Administrator to assist the Issuer in performing its duties
under this Indenture.

            (c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, in the Basic Documents
and in the instruments and agreements included in the Collateral, including but
not limited to (i) filing or causing to be filed all UCC financing statements
and continuation statements required to be filed by the terms of this Indenture
and the Sale and Servicing Agreement and (ii) recording or causing to be
recorded all Mortgages, Assignments of Mortgage, all intervening Assignments of
Mortgage and all assumption and modification agreements required to be recorded
by the terms of the Sale and Servicing Agreement, in accordance with and within
the time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee
and the Majority Noteholders.

            (d) If the Issuer shall have knowledge of the occurrence of a
Servicing Event of Default, the Issuer shall promptly notify the Indenture
Trustee and the Initial Noteholder thereof, and shall specify in such notice the
action, if any, the Issuer is taking with respect to such default. If a
Servicing Event of Default shall arise from the failure of the Servicer to
perform any of its duties or obligations under the Sale and Servicing Agreement
with respect to the Loans, the Issuer shall take all reasonable steps available
to it to remedy such failure.

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<PAGE>

            (e) Reserved.

            (f) Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee. As soon as a successor servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such successor servicer.

            (g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees (i) that it will not, without the
prior written consent of the Indenture Trustee, amend, modify, waive,
supplement, terminate or surrender, or agree to any amendment, modification,
supplement, termination, waiver or surrender of, the terms of any Collateral
(except to the extent otherwise permitted by the Sale and Servicing Agreement)
or the Basic Documents, or waive timely performance or observance by the
Servicer or the Depositor under the Sale and Servicing Agreement; and (ii) that
any such amendment shall not (A) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, distributions that are required to be made
for the benefit of the Noteholders or (B) reduce the aforesaid percentage of the
Notes that is required to consent to any such amendment, without the consent of
Noteholders evidencing 100% Percentage Interests of the Outstanding Notes. If
any such amendment, modification, supplement or waiver shall so be consented to
by the Indenture Trustee, the Issuer agrees, promptly following a request by the
Indenture Trustee to do so, to execute and deliver, in its own name and at its
own expense, such agreements, instruments, consents and other documents as the
Indenture Trustee may deem necessary or appropriate in the circumstances.

      Section 3.08 Reserved.

      Section 3.09 Annual Statement as to Compliance. So long as the Notes are
Outstanding, the Issuer will deliver to the Indenture Trustee, within 120 days
after the end of each fiscal year of the Issuer (commencing with the fiscal year
beginning on May 1, 2004, an Officer's Certificate stating, as to the Authorized
Officer signing such Officer's Certificate, that:

                  (i) a review of the activities of the Issuer during such year
and of its performance under this Indenture has been made under such Authorized
Officer's supervision; and

                  (ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has materially complied with all conditions and
covenants under this Indenture throughout such year, or, if there has been a
default in its compliance with any such condition or covenant, specifying each
such default known to such Authorized Officer and the nature and status thereof.

      Section 3.10 Covenants of the Issuer. All covenants of the Issuer in this
Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Trust
Agreement will be, entering into this Indenture solely as Owner Trustee under
the Trust Agreement and not in its respective individual capacity, and in no
case whatsoever shall the Owner Trustee or any such successor Owner Trustee be
personally liable on, or for any loss in respect of, any of the statements,
representations,

                                       20
<PAGE>

warranties or obligations of the Issuer hereunder, as to all of which the
parties hereto agree to look solely to the property of the Issuer.

      Section 3.11 Servicer's Obligations. The Issuer shall cause the Servicer
to comply with the Sale and Servicing Agreement.

      Section 3.12 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, (x)
distributions to the Servicer, the Indenture Trustee, the Owner Trustee, the
Noteholders and the holders of the Trust Certificates as contemplated by, and to
the extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Trust Agreement and (y) payments to the Indenture Trustee
pursuant to Section 1(a)(ii) of the Administration Agreement. The Issuer will
not, directly or indirectly, make or cause to be made payments to or
distributions from the Distribution Account except in accordance with this
Indenture and the Basic Documents.

      Section 3.13 Treatment of Notes as Debt for All Purposes. The Issuer
shall, and shall cause the Administrator to, treat the Notes as indebtedness for
all purposes.

      Section 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee and the Initial Noteholder prompt written notice of each Event
of Default hereunder and each default on the part of the Servicer or the Loan
Originator of their respective obligations under any of the Basic Documents.

      Section 3.15 Further Instruments and Acts. Upon request of the Indenture
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.

                                   ARTICLE IV

                           SATISFACTION AND DISCHARGE

      Section 4.01 Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect with respect to the Notes (except as to (i) rights
of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04 and 3.10
hereof, (v) the rights, obligations and immunities of the Indenture Trustee
hereunder (including the rights of the Indenture Trustee under Section 6.07
hereof and the obligations of the Indenture Trustee under Section 4.02 hereof)
and (vi) the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Indenture Trustee payable to all or any of them),
and the Indenture Trustee, on demand of and at the expense of the Issuer, shall
execute proper instruments satisfactory to it, and prepared and delivered to it
by the Issuer, acknowledging

                                       21
<PAGE>

satisfaction and discharge of this Indenture with respect to the Notes, when all
of the following have occurred:

            (A) either

                  (1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.04 hereof and (ii) Notes for the
payment of which money has theretofore been deposited in trust or segregated and
held in trust by the Issuer and thereafter repaid to the Issuer or discharged
from such trust, as provided in Section 3.03 hereof) shall have been delivered
to the Indenture Trustee for cancellation; or

                  (2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation

                        a. shall have become due and payable, or

                        b. are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense, of the
Issuer,

                        c. and the Issuer, in the case of clause a. or b. above,
has irrevocably deposited or caused irrevocably to be deposited with the
Indenture Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such amounts are
payable), in trust for such purpose, in an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore delivered to the
Indenture Trustee for cancellation when due to the applicable Maturity Date or
the Redemption Date (if Notes shall have been called for redemption pursuant to
Section 10.01 hereof), as the case may be; and

            (B) the latest of (a) the payment in full of all outstanding
obligations under the Notes, (b) the payment in full of all unpaid Trust Fees
and Expenses and (c) the date on which the Issuer has paid or caused to be paid
all other sums payable hereunder by the Issuer; and

            (C) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel, each meeting the applicable
requirements of Section 11.01 hereof and, subject to Section 11.02 hereof, each
stating that all conditions precedent herein provided for, relating to the
satisfaction and discharge of this Indenture with respect to the Notes, have
been complied with.

      Section 4.02 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Noteholders for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and/or interest; but
such moneys need not be segregated from other funds except to the extent
required herein or in the Sale and Servicing Agreement or required by law.

                                       22
<PAGE>

      Section 4.03 Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent other than the Indenture Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Indenture Trustee to be held and applied according to
Section 3.03 hereof and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.

                                    ARTICLE V

                                    REMEDIES

      Section 5.01 Events of Default. "Event of Default." wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):

            (a) notwithstanding any insufficiency of funds in the Distribution
Account for payment thereof on the related Payment Date, default in the payment
of any interest on any Note when the same becomes due and payable; or

            (b) notwithstanding any insufficiency of funds in the Distribution
Account for payment thereof on the related Payment Date, default in the payment
of any installment of the Overcollateralization Shortfall of any Note (i) on any
Payment Date or (ii) on the Maturity Date, or, to the extent that there are
funds available in the Distribution Account therefor, default in the payment of
any installment of the principal of any Note from such available funds, as a
result of the occurrence of a Rapid Amortization Trigger; or

            (c) the occurrence of a Servicer Event of Default; or

            (d) default in the observance or performance of any covenant or
agreement of the Issuer made in any Basic Document to which it is a party (other
than a covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section 5.01 specifically dealt with), or any
representation or warranty of the Issuer made in any Basic Document to which it
is a party or in any certificate or other writing delivered pursuant thereto or
is in connection therewith proving to have been incorrect in any material
respect as of the time when the same shall have been made (except that the
materiality standard in this subsection (d) shall not apply to any such
representation or warranty which is qualified by a materiality standard by its
terms), and such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was incorrect
shall not have been eliminated or otherwise cured, for a period of 30 days after
there shall have been given, by registered or certified mail, to the Issuer by
the Indenture Trustee, or to the Issuer, the Depositor and the Indenture Trustee
by Noteholders evidencing at least 25% Percentage Interests of the Outstanding
Notes, a written notice specifying such default or incorrect representation or
warranty and requiring it to be remedied and stating that such notice is a
notice of Default hereunder; or

                                       23
<PAGE>

            (e) default in the observance or performance of any covenant or
agreement of the Depositor made in any Basic Document to which it is a party or
any representation or warranty of the Depositor (except as otherwise expressly
provided in the Basic Documents with respect to representations and warranties
regarding the Loans) or Loan Originator made in any Basic Document to which they
are a party, proving to have been incorrect in any material respect as of the
time when the same shall have been made (except that the materiality standard in
this subsection (e) shall not apply to any such representation or warranty which
is qualified by a materiality standard by its terms), and such default shall
continue or not be cured, or the circumstance or condition in respect of which
such misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days (or five days in the case of the
failure of the Loan Originator to make a payment in respect of the Transfer
Obligation) after there shall have been given, by registered or certified mail,
to the Issuer and the Depositor by the Indenture Trustee, or to the Issuer, the
Depositor and the Indenture Trustee by Noteholders evidencing at least 25%
Percentage Interests of the Outstanding Notes, a written notice specifying such
Default or incorrect representation or warranty and requiring it to be remedied
and stating that such notice is a notice of Default hereunder; or

            (f) default in the observance or performance of any covenant or
agreement of the Loan Originator made in any repurchase agreement, loan and
security agreement or other similar credit facility agreement entered into by
the Loan Originator and any third party for borrowed funds in excess of
$10,000,000, including any default which entitles any party to require
acceleration or prepayment of any indebtedness thereunder; or

            (g) the filing of an involuntary petition under any applicable
federal or state bankruptcy, insolvency or other similar law now or hereafter in
effect in a court having jurisdiction over the Issuer, the Depositor or the Loan
Originator, or the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Issuer,
the Depositor or the Loan Originator or for any substantial part of the or all
or substantially all of the Collateral which shall remain unstayed and in effect
for a period of 60 consecutive days or the entry of a decree or order for relief
in an involuntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the ordering of
the winding-up or liquidation of the affairs of the Issuer, the Depositor or the
Loan Originator; or

            (h) the commencement by the Issuer, the Depositor or the Loan
Originator 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
the Issuer, the Depositor or the Loan Originator to the entry of an order for
relief in an involuntary case under any such law, or the consent by the Issuer
to the appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer, the
Depositor or the Loan Originator or for any substantial part of the Collateral,
or the making by the Issuer, the Depositor or the Loan Originator of any general
assignment for the benefit of creditors, or the failure by the Issuer, the
Depositor or the Loan Originator generally to pay its respective debts as such
debts become due, or the taking of any action by the Issuer, the Depositor or
the Loan Originator in furtherance of any of the foregoing; or

            (i) a Change of Control of the Loan Originator; or

                                       24
<PAGE>

            (j) the Notes shall be Outstanding on the day after the end of the
Revolving Period.

            The Issuer shall deliver to the Indenture Trustee, promptly (and in
any event within five days) after the occurrence thereof, written notice in the
form of an Officer's Certificate of any Event of Default, or any event which
with the giving of notice and the lapse of time would become an Event of Default
under clauses (d) or (e) above, the status of such event and what action the
Issuer or the Depositor, as applicable, is taking or proposes to take with
respect thereto.

      Section 5.02 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Indenture Trustee, at the direction or upon the prior written consent of the
Majority Noteholders, may declare all the Notes to be immediately due and
payable, by a notice in writing to the Issuer (and to the Indenture Trustee if
given by Noteholders), and upon any such declaration, the unpaid principal
amount of such Notes, together with accrued and unpaid interest thereon through
the date of acceleration, shall become immediately due and payable.

            At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Majority Noteholders, by written notice to the Issuer and the Indenture Trustee,
may rescind and annul such declaration and its consequences if:

            (a) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:

                  (1) all payments of principal of and/or interest on all Notes
and all other amounts that would then be due hereunder or upon such Notes if the
Event of Default giving rise to such acceleration had not occurred; and

                  (2) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements and advances
of the Indenture Trustee and its agents and counsel; and

            (b) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration, have
been cured or waived as provided in Section 5.12 hereof. No such rescission
shall affect any subsequent default or impair any right consequent thereto.

      Section 5.03 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.

            (a) The Issuer covenants that if (i) default is made in the payment
of any interest on any Note when the same becomes due and payable, and such
default continues for a period of two days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issuer will, upon demand of the Indenture
Trustee, pay to the Indenture Trustee, for the benefit of the Noteholders, the

                                       25
<PAGE>

whole amount then due and payable on such Notes for principal and/or interest,
with interest upon the overdue principal and, to the extent payment at such rate
of interest shall be legally enforceable, upon overdue installments of interest
at the rate borne by the Notes and in addition thereto such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee and its agents and counsel.

            (b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee shall at the direction of the Majority
Noteholders, subject to Section 5.06(c), institute a Proceeding for the
collection of the sums so due and unpaid, and may prosecute such Proceeding to
judgment or final decree, and may enforce the same against the Issuer or other
obligor upon such Notes and collect in the manner provided by law out of the
property of the Issuer or other obligor upon such Notes, wherever situated, the
moneys adjudged or decreed to be payable.

            (c) If an Event of Default occurs and is continuing, the Indenture
Trustee shall at the direction of the Majority Noteholders, as more particularly
provided in Section 5.04 hereof, subject to Section 5.06(c) hereof, proceed to
protect and enforce its rights and the rights of the Noteholders by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.

            (d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Collateral. Proceedings under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section 5.03, shall be
entitled and empowered by intervention in such Proceedings or otherwise:

                  (i) to file and prove a claim or claims for the whole amount
of principal and/or interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee, and
its agents, attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad faith)
and of the Noteholders allowed in such Proceedings;

                                       26
<PAGE>

                  (ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Noteholders in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;

                  (iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts received
with respect to the claims of the Noteholders and the Indenture Trustee on their
behalf; and

                  (iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Noteholders allowed in any judicial proceedings
relative to the Issuer, its creditors and its property; and any trustee,
receiver, liquidator, custodian or other similar official in any such Proceeding
is hereby authorized by each of such Noteholders to make payments to the
Indenture Trustee and, in the event that the Indenture Trustee shall consent to
the making of payments directly to such Noteholders, to pay to the Indenture
Trustee such amounts as shall be sufficient to cover reasonable compensation to
the Indenture Trustee, each predecessor Indenture Trustee and their respective
agents, attorneys and counsel, and all other expenses and liabilities incurred
and all advances made by the Indenture Trustee and each predecessor Indenture
Trustee except as a result of negligence or bad faith.

            (e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or vote for or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.

            (f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Indenture Trustee
without the possession of any of the Notes or the production thereof in any
trial or other Proceedings relative thereto, and any such action or Proceedings
instituted by the Indenture Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, subject to the payment of the
expenses, disbursements and compensation of the Indenture Trustee, each
predecessor Indenture Trustee and their respective agents, attorneys and
counsel, shall be for the ratable benefit of the Noteholders.

            (g) In any Proceedings brought by the Indenture Trustee (and also
any Proceedings involving the interpretation of any provision of this Indenture
to which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Noteholders, and it shall not be necessary to make any
Noteholder a party to any such Proceedings.

      Section 5.04 Remedies; Priorities, (a) If an Event of Default shall have
occurred and be continuing, the Indenture Trustee, at the direction of the
Majority Noteholders shall, do one or more of the following (subject to Section
5.05 hereof):

                                       27
<PAGE>

                  (i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the Notes or
under this Indenture with respect thereto, whether by declaration or otherwise,
enforce any judgment obtained, and collect from the Issuer and any other obligor
upon such Notes moneys adjudged due;

                  (ii) institute Proceedings from time to time for the complete
or partial foreclosure of this Indenture with respect to the Collateral;

                  (iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee or the Noteholders; and

                  (iv) sell the Collateral or any portion thereof or rights or
interest therein in a commercially reasonable manner, at one or more public or
private sales called and conducted in any manner permitted by law; provided,
however, that the Indenture Trustee may not sell or otherwise liquidate the
Collateral following an Event of Default, unless (A) the Holders of 100%
Percentage Interests of the Outstanding Notes consent thereto, (B) the proceeds
of such sale or liquidation distributable to the Noteholders are sufficient to
discharge in full all amounts then due and unpaid upon such Notes for principal
and/or interest or (C) the Indenture Trustee determines that the Collateral will
not continue to provide sufficient funds for the payment of principal of and
interest on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent of
Holders of not less than 66-2/3% Percentage Interests of the Outstanding Notes.
In determining such sufficiency or insufficiency with respect to clause (B) and
(C) of this subsection (a)(iv), the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Collateral for such purpose.

            (b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:

            FIRST: in the following order of priority: (a) to the Indenture
Trustee, an amount equal to all unreimbursed Indenture Trustee Fees and
indemnities and any other amounts payable to the Indenture Trustee pursuant to
the Basic Documents and to the Indenture Trustee or Sale Agents, as applicable,
all reasonable fees and expenses incurred by them and their agents and
representatives in connection with the enforcement of the remedies provided for
in this Article V, (b) to the Custodian, an amount equal to all unpaid Custodian
Fees and indemnities and any other amounts payable to the Custodian pursuant to
the Basic Documents, (c) to the Owner Trustee, an amount equal to all
unreimbursed Owner Trustee Fee and indemnities and any other amounts payable to
the Owner Trustee pursuant to the Basic Documents, and (d) to the Servicer, an
amount equal to (i) all unreimbursed Servicing Compensation and (ii) all
unreimbursed Nonrecoverable Servicing Advances;

            SECOND: the Hedge Funding Requirement to the appropriate Hedging
Counterparties;

                                       28
<PAGE>

            THIRD: to the Noteholders pro rata, all amounts in respect of
Monthly Interest due and owing under the Notes;

            FOURTH: to the Noteholders pro rata, all amounts in respect of
unpaid principal of the Notes;

            FIFTH: to the Purchaser or any other Indemnified Party (as each such
term is defined in the Note Purchase Agreement), amounts in respect of
Issuer/Depositor Indemnities (as defined in the Trust Agreement) and to the
Initial Noteholder, amounts in respect of Due Diligence Fees (as set forth in
Section 11.15, of the Sale and Servicing Agreement) until such amounts are paid
in full; and

            SIXTH: to the Owner Trustee, for any amounts to be distributed pro
rata to the holders of the Trust Certificates pursuant to the Trust Agreement.

            The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section 5.04. At least 15
days before such record date, the Indenture Trustee shall mail to each
Noteholder and the Issuer a notice that states the record date, the payment date
and the amount to be paid.

      Section 5.05 Optional Preservation of the Collateral. If the Notes have
been declared to be due and payable under Section 5.02 hereof following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Collateral. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining whether to maintain possession of the Collateral, the
Indenture Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the
Collateral for such purpose.

      Section 5.06 Limitation of Suits. No Noteholder shall have any right to
institute any Proceeding, judicial or otherwise, with respect to this Indenture
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:

            (a) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;

            (b) the Noteholders evidencing not less than 25% Percentage
Interests of the Outstanding Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;

            (c) such Noteholder or Noteholders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;

            (d) the Indenture Trustee for 30 days after its receipt of such
notice, request and offer of indemnity has failed to institute such Proceeding;
and

                                       29
<PAGE>

            (e) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 30-day period by the Majority
Noteholders.

            It is understood and intended that no one or more Noteholders shall
have any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Noteholders or to obtain or to seek to obtain priority or preference over
any other Noteholders or to enforce any right under this Indenture, except in
the manner herein provided.

            In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Noteholders,
neither of which evidences Percentage Interests of the Outstanding Notes greater
than 50%, the Indenture Trustee in its sole discretion may determine what
action, if any, shall be taken, notwithstanding any other provisions of this
Indenture and shall have no obligation or liability to any such group of
Noteholders for such action or inaction.

      Section 5.07 Unconditional Rights of Noteholders to Receive Principal
and/or Interest. Notwithstanding any other provisions in this Indenture, any
Noteholder shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest, if any, on such Note on or after the
applicable Maturity Date thereof expressed in such Note or in this Indenture
(or, in the case of redemption, on or after the Redemption Date) and to
institute suit for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Noteholder.

      Section 5.08 Restoration of Rights and Remedies. If the Indenture Trustee
or any Noteholder has instituted any Proceeding to enforce any right or remedy
under this Indenture and such Proceeding has been discontinued or abandoned for
any reason or has been determined adversely to the Indenture Trustee or to such
Noteholder, then and in every such case the Issuer, the Indenture Trustee and
the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.

      Section 5.09 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.

      Section 5.10 Delay or Omission Not a Waiver. No delay or omission of the
Indenture Trustee or any Noteholder to exercise any right or remedy accruing
upon any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the
Indenture Trustee or to the Noteholders may be exercised from time to time, and
as often as may be deemed expedient, by the Indenture Trustee or by the
Noteholders, as the case may be.

                                       30
<PAGE>

      Section 5.11 Control by Noteholders. The Majority Noteholders shall have
the right to direct the time, method and place of conducting any Proceeding for
any remedy available to the Indenture Trustee with respect to the Notes or
exercising any trust or power conferred on the Indenture Trustee; provided,
however, that:

            (a) such direction shall not be in conflict with any rule of law or
with this Indenture;

            (b) subject to the express terms of Section 5.04(a)(iv) hereof, any
direction to the Indenture Trustee to sell or liquidate the Collateral shall be
by Holders of Notes representing Percentage Interests of the Outstanding Notes
of not less than 100%;

            (c) if the conditions set forth in Section 5.05 hereof have been
satisfied and the Indenture Trustee elects to retain the Collateral pursuant to
such Section, then any direction to the Indenture Trustee by Holders of Notes
representing Percentage Interests of the Outstanding Notes of less than 100% to
sell or liquidate the Collateral shall be of no force and effect; and

            (d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.

            In connection with any sale of the Collateral in accordance with
paragraph (c) above, the Majority Noteholders may, in their sole discretion
appoint agents to effect the sale of the Collateral (such agents, "Sale
Agents"), which Sale Agents may be Affiliates of any Noteholder. The Sale Agents
shall be entitled to reasonable compensation in connection with such activities
from the proceeds of such sale.

            Notwithstanding the rights of the Noteholders set forth in this
Section 5.11. subject to Section 6.01 hereof, the Indenture Trustee need not
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.

      Section 5.12 Waiver of Past Defaults. The Majority Noteholders may waive
any past Default or Event of Default and its consequences, except a Default (a)
in the payment of principal of or interest on any of the Notes or (b) in respect
of a covenant or provision hereof that cannot be modified or amended without the
consent of each Noteholder. In the case of any such waiver, the Issuer, the
Indenture Trustee and Noteholders shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereto.

            Upon any such waiver, such Default shall cease to exist and be
deemed to have been cured and not to have occurred, and any Event of Default
arising therefrom shall be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any right consequent
thereto.

      Section 5.13 Undertaking for Costs. All parties to this Indenture agree,
and each Noteholder by such Noteholder's acceptance thereof shall be deemed to
have agreed, that any

                                       31
<PAGE>

court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Indenture
Trustee for any action taken, suffered or omitted by it as Indenture Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 5.13 shall not apply to
(a) any suit instituted by the Indenture Trustee, (b) any suit instituted by any
Noteholder, or group of Noteholders, in each case holding in the aggregate
Percentage Interests of the Outstanding Notes of more than 10% or (c) any suit
instituted by any Noteholder for the enforcement of the payment of principal of
or interest on any Note on or after the respective due dates expressed in such
Note and in this Indenture (or, in the case of redemption, on or after the
Redemption Date).

      Section 5.14 Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.

      Section 5.15 Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.04(b) hereof.

      Section 5.16 Performance and Enforcement of Certain Obligations.

            (a) Promptly following a request from the Indenture Trustee to do so
and at the Administrator's expense, the Issuer shall take all such lawful action
as the Indenture Trustee may request to compel or secure the performance and
observance by the Loan Originator and the Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement or the Loan Purchase Agreement, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Loan Originator or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Loan Originator or the Servicer of each of their
obligations under the Sale and Servicing Agreement and the Loan Purchase
Agreement.

            (b) If an Event of Default has occurred and is continuing, the
Indenture Trustee may, and at the direction (which direction shall be in writing
or by telephone, confirmed

                                       32
<PAGE>

in writing promptly thereafter) of the Majority Noteholders shall, subject to
Section 5.06(c) exercise all rights, remedies, powers, privileges and claims of
the Issuer against the Loan Originator or the Servicer under or in connection
with the Sale and Servicing Agreement or the Loan Purchase Agreement, including
the right or power to take any action to compel or secure performance or
observance by the Loan Originator or the Servicer, as the case may be, of each
of their obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension, or waiver under the Sale and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.

                                   ARTICLE VI

                              THE INDENTURE TRUSTEE

      Section 6.01 Duties of Indenture Trustee.

            (a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.

            (b) Except during the continuance of an Event of Default:

                  (i) the Indenture Trustee shall undertake to perform such
duties and only such duties as are specifically set forth in this Indenture and
no implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and

                  (ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Indenture Trustee and conforming to the requirements of this
Indenture; provided, however, that the Indenture Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture to the extent specifically set forth herein.

            (c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:

                  (i) this paragraph does not limit the effect of paragraph(b)
of this Section 6.01:

                  (ii) the Indenture Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer unless it is proved that
the Indenture Trustee was negligent in ascertaining the pertinent facts;

                  (iii) the Indenture Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11 hereof; and

                  (iv) Reserved.

                                       33
<PAGE>

            (d) Reserved.

            (e) The Indenture Trustee shall not be liable for interest on any
money received by it and held in a Trust Account except as may be provided in
the Sale and Servicing Agreement or as the Indenture Trustee may agree in
writing with the Issuer.

            (f) Money held in trust by the Indenture Trustee shall be segregated
from other funds except to the extent permitted by law or the terms of this
Indenture or the Sale and Servicing Agreement.

            (g) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder or in the exercise of any of
its rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it; provided, however, that the Indenture Trustee
shall not refuse or fail to perform any of its duties hereunder solely as a
result of nonpayment of its normal fees and expenses and provided, further, that
nothing in this Section 6.01(g) shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer's failure to pay the Indenture Trustee's
fees and expenses pursuant to Section 6.07 hereof.

            (h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section 6.01.

            (i) The Indenture Trustee shall not be required to take notice or be
deemed to have notice or knowledge of any Event of Default (other than an Event
of Default pursuant to Section 5.01(a) or (b) hereof) unless a Responsible
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.

      Section 6.02 Rights of Indenture Trustee.

            (a) The Indenture Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.

            (b) Before the Indenture Trustee acts or refrains from acting, it
may require an Officer's Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on an Officer's Certificate or Opinion of Counsel.

            (c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.

                                       34
<PAGE>

            (d) The Indenture Trustee shall not be liable for (i) any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers; provided, however, that such action or omission by
the Indenture Trustee does not constitute willful misconduct, negligence or bad
faith; or (ii) any action or inaction on the part of the Custodian.

            (e) The Indenture Trustee may consult with counsel, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.

      Section 6.03 Individual Rights of Indenture Trustee. The Indenture Trustee
in its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Indenture Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Indenture Trustee must comply with Section 6.11 hereof.

      Section 6.04 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or responsible for any statement of
the Issuer in the Indenture or in any document issued in connection with the
sale of the Notes or in the Notes other than the Indenture Trustee's certificate
of authentication.

      Section 6.05 Notices of Default. If a Default occurs and is continuing and
if it is actually known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to each Noteholder and each party to the Master
Disposition Confirmation Agreement notice of the Default within two Business
Days after it receives actual notice of such occurrence.

      Section 6.06 Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information specifically requested
by each Noteholder and in the Indenture Trustee's possession and as may be
reasonably required to enable such Noteholder to prepare its federal and state
income tax returns.

      Section 6.07 Compensation and Indemnity. As compensation for its services
hereunder, the Indenture Trustee shall be entitled to receive, on each Payment
Date, the Indenture Trustee's Fee pursuant to Section 8.02(c) hereof (which
compensation shall not be limited by any law on compensation of a trustee of an
express trust) and shall be entitled to reimbursement by the Servicer for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer agrees to cause the Servicer to indemnify the Indenture Trustee, the
Paying Agent and their officers, directors, employees and agents against any and
all loss, liability or expense (including reasonable attorneys' fees) incurred
by it or them in connection with the administration of this trust and the
performance of its or their duties under the Basic Documents. The Indenture
Trustee shall notify the Issuer and the Servicer promptly of any claim for which
it may seek indemnity. Failure by

                                       35
<PAGE>

the Indenture Trustee so to notify the Issuer and the Servicer shall not relieve
the Issuer or the Servicer of its or their obligations hereunder. The Issuer
shall, or shall cause the Servicer to, defend any such claim; provided, however,
that if the defendants with respect to any such claim include the Issuer and/or
the Servicer and the Indenture Trustee, and the Indenture Trustee shall have
reasonably concluded that there may be legal defenses available to it which are
different from or in addition to those defenses available to the Issuer or the
Servicer, as the case may be, the Indenture Trustee shall have the right, at the
expense of the Servicer, to select separate counsel to assert such legal
defenses and to otherwise defend itself against such claim. Neither the Issuer
nor the Servicer need reimburse any expense or indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith.

            The Issuer's payment obligations to the Indenture Trustee pursuant
to this Section 6.07 shall survive the discharge of this Indenture and the
termination or resignation of the Indenture Trustee. When the Indenture Trustee
incurs expenses after the occurrence of a Default specified in Section 5.01(f)
or (g) hereof with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.

            Notwithstanding anything in this Section 6.07 to the contrary, all
amounts due the Indenture Trustee hereunder shall be payable in the first
instance by the Servicer and, if not paid by the Servicer within 60 days after
payment is requested from the Servicer by the Indenture Trustee, in accordance
with the priorities set forth in Section 5.01 of the Sale and Servicing
Agreement.

      Section 6.08 Replacement of Indenture Trustee. No resignation or removal
of the Indenture Trustee and no appointment of a successor Indenture Trustee
shall become effective until the acceptance of appointment by the successor
Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee may
resign at any time by so notifying the Issuer. The Majority Noteholders may
remove the Indenture Trustee (with the consent of the Majority
Certificateholders, not to be unreasonably withheld) by so notifying the
Indenture Trustee and may appoint a successor Indenture Trustee; provided, that
all of the reasonable costs and expenses incurred by the Indenture Trustee in
connection with such removal shall be reimbursed to it prior to the
effectiveness of such removal. The Issuer shall remove the Indenture Trustee if:

            (a) the Indenture Trustee fails to comply with Section 6.11 hereof;

            (b) the Indenture Trustee is adjudged a bankrupt or insolvent;

            (c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or

            (d) the Indenture Trustee otherwise becomes incapable of acting.

            If the Indenture Trustee resigns or is removed or if a vacancy
exists in the office of Indenture Trustee for any reason (the Indenture Trustee
in such event being referred to herein as the retiring Indenture Trustee), the
Issuer shall promptly appoint a successor Indenture Trustee.

                                       36
<PAGE>

            A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee and to the Issuer. Thereupon
the resignation or removal of the retiring Indenture Trustee shall become
effective, and the successor Indenture Trustee shall have all the rights, powers
and duties of the Indenture Trustee under this Indenture. The successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.

            If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Majority Noteholders may petition any court
of competent jurisdiction for the appointment of a successor Indenture Trustee.

            If the Indenture Trustee fails to comply with Section 6.11 hereof,
any Noteholder may petition any court of competent jurisdiction for the removal
of the Indenture Trustee and the appointment of a successor Indenture Trustee.

            Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section 6.08, the Issuer's and the Administrator's obligations under
Section 6.07 hereof shall continue for the benefit of the retiring Indenture
Trustee.

      Section 6.09 Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided,
however, that such corporation or banking association shall otherwise be
qualified and eligible under Section 6.11 hereof. The Indenture Trustee shall
provide the Majority Noteholders prior written notice of any such transaction.

            In case at the time such successor or successors by merger,
conversion or consolidation to the Indenture Trustee shall succeed to the trusts
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Indenture Trustee may adopt the certificate
of authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.

      Section 6.10 Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.

            (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Collateral may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the

                                       37
<PAGE>

Collateral, or any part hereof, and, subject to the other provisions of this
Section 6.10, such powers, duties, obligations, rights and trusts as the
Indenture Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.11 hereof and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.

            (b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:

                  (i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Indenture Trustee joining in
such act), except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Collateral or any portion thereof in any such jurisdiction) shall be exercised
and performed singly by such separate trustee or co-trustee, but solely at the
direction of the Indenture Trustee;

                  (ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder; and

                  (iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.

            (c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Indenture and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, subject to all the provisions of this Indenture, specifically including
every provision of this Indenture relating to the conduct of, affecting the
liability of, or affording protection to, the Indenture Trustee. Every such
instrument shall be filed with the Indenture Trustee.

            (d) Any separate trustee or co-trustee may at any time constitute
the Indenture Trustee its agent or attorney-in-fact with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Indenture on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.

      Section 6.11 Eligibility. The Indenture Trustee shall (1) have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition or (ii) otherwise be acceptable in writing
to the Majority Noteholders.

                                       38
<PAGE>

                                   ARTICLE VII

                         NOTEHOLDERS' LISTS AND REPORTS

      Section 7.01 Issuer to Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Noteholders as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.

      Section 7.02 Preservation of Information. The Indenture Trustee shall
preserve, in as current a form as is reasonably practicable, the names and
addresses of the Noteholders contained in the most recent list furnished to the
Indenture Trustee as provided in Section 7.01 hereof and the names and addresses
of Noteholders received by the Indenture Trustee in its capacity as Note
Registrar. The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.01 upon receipt of a new list so furnished.

      Section 7.03 144A Information. The Indenture Trustee, to the extent it has
any such information in its possession, shall provide to any Noteholder and any
prospective transferee designated by any such Noteholder information regarding
the Notes and the Loans and such other information as shall be necessary to
satisfy the condition to eligibility set forth in Rule 144A(d)(4) under the
Securities Act for transfer of any such Note without registration thereof under
the Securities Act pursuant to the registration exemption provided by Rule 144A
under the Securities Act.

                                  ARTICLE VIII

                      ACCOUNTS, DISBURSEMENTS AND RELEASES

      Section 8.01 Collection of Money. General. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any intermediary, all money and other property payable to or receivable by the
Indenture Trustee pursuant to this Indenture. The Indenture Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if any default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Collateral, the Indenture Trustee may take such action as may be appropriate to
enforce such payment or performance, including the institution and prosecution
of appropriate Proceedings. Any such action shall be without prejudice to any
right to claim a Default or Event of Default under this Indenture and any right
to proceed thereafter as provided in Article V hereof.

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<PAGE>

      Section 8.02 Trust Accounts; Distributions.

            (a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Noteholders, or on behalf of the Owner Trustee for the benefit of
the Securityholders, the Trust Accounts as provided in the Sale and Servicing
Agreement. The Servicer shall deposit amounts into each of the Trust Accounts in
accordance with the terms hereof, the Sale and Servicing Agreement and the
Payment Statements.

            (b) Collection Account. With respect to the Collection Account, the
Paying Agent shall make such withdrawals and distributions as specified in
Section 5.01(c)(1) of the Sale and Servicing Agreement in accordance with the
terms thereof.

            (c) Distribution Account. With respect to the Distribution Account,
the Paying Agent shall make (i) such deposits as specified in Sections
5.01(c)(2)(A), 5.01(c)(2)(B), 5.05(e), 5.05(f), 5.05(g), and 5.05(h) of the Sale
and Servicing Agreement and (ii) such withdrawals and distributions as specified
in Section 5.01(c)(3) of the Sale and Servicing Agreement in accordance with the
terms thereof.

            (d) Transfer Obligation Account. With respect to the Transfer
Obligation Account, the Paying Agent shall make (1) such deposits as specified
in Section 5.01 (c)(3)(vii) of the Sale and Servicing Agreement and (ii) such
withdrawals and distributions as specified in Sections 5.05(d), 5.05(e),
5.05(f), 5.05(g), 5.05(h), and 5.05(i) of the Sale and Servicing Agreement in
accordance with the terms thereof.

            (e) Reserved.

            (f) Advance Account. With respect to the Advance Account, the Issuer
shall cause the Servicer to make such withdrawals specified in Section 2.06 of
the Sale and Servicing Agreement.

      Section 8.03 General Provisions Regarding Trust Accounts.

            (a) All or a portion of the funds in the Collection Account and the
Transfer Obligation Account shall be invested in Permitted Investments in
accordance with the provisions of Section 5.03(b) of the Sale and Servicing
Agreement. The Indenture Trustee will not make any investment of any funds or
sell any investment held in the Collection Account or the Transfer Obligation
Account (other than in Permitted Investments in accordance with Section 5.03(b)
of the Sale and Servicing Agreement) unless the security interest Granted and
perfected in such account will continue to be perfected in such investment or
the proceeds of such sale, in either case without any further action by any
Person, as evidenced by an Opinion of Counsel delivered to the Indenture Trustee
by the Initial Noteholder or the Servicer, as the case may be.

            (b) Subject to Section 6.01(c) hereof, the Indenture Trustee shall
not in any way be held liable by reason of any insufficiency in the Collection
Account or the Transfer Obligation Account resulting from any loss on any
Eligible Investment included therein.

                                       40
<PAGE>

            (c) If (i) the Initial Noteholder or the Servicer, as the case may
be, shall have failed to give investment directions for any funds on deposit in
the Collection Account or the Transfer Obligation Account to the Indenture
Trustee by 2:00 p.m. New York City time (or such other time as may be agreed by
the Issuer and Indenture Trustee) on any Business Day or (ii) a Default or Event
of Default shall have occurred and be continuing with respect to the Notes but
the Notes shall not have been declared due and payable pursuant to Section 5.02
hereof or (iii) if such Notes shall have been declared due and payable following
an Event of Default, amounts collected or receivable from the Collateral are
being applied in accordance with Section 5.05 hereof as if there had not been
such a declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Collection Account and the
Transfer Obligation Account in one or more Permitted Investments specified in
item (3) in the definition thereof.

      Section 8.04 The Paying Agent. The initial Paying Agent shall be the
Servicer. The Paying Agent may be removed by the Initial Noteholder in its sole
discretion at any time. Upon removal of the Paying Agent, the Initial Noteholder
will appoint a successor Paying Agent within 30 days; provided that the
Indenture Trustee will be the Paying Agent until such successor is appointed.
Upon receiving written notice from the Initial Noteholder that the Paying Agent
has been terminated, the Indenture Trustee will immediately terminate the Paying
Agent's access to any and all Trust Accounts.

      Section 8.05 Release of Collateral.

            (a) Subject to the payment of its reasonable fees and expenses
pursuant to Section 6.07 hereof, the Indenture Trustee may, and when required by
the provisions of this Indenture shall, execute instruments acceptable to it and
prepared and delivered to it by the Issuer to release property from the lien of
this Indenture, or convey the Indenture Trustee's interest in the same, without
recourse, representation or warranty in a-manner as provided in the Custodial
Agreement and under circumstances that are not inconsistent with the provisions
of this Indenture and the other Basic Documents. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article VIII
shall be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.

            (b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Noteholders (and their Affiliates), the
Initial Noteholder, the Sales Agents, the Indenture Trustee, the Owner Trustee
and the Custodian under the Basic Documents have been paid, release any
remaining portion of the Collateral that secured the Notes from the lien of this
Indenture and release to the Issuer or any other Person entitled thereto any
funds then on deposit in the Trust Accounts. At such time as the lien of this
Indenture is released, the Indenture Trustee shall cause a termination statement
to be filed in any jurisdiction where UCC financing statement has been filed
hereunder with respect to the Collateral. The Indenture Trustee shall release
property from the lien of this Indenture pursuant to this subsection (b) only
upon receipt of an Issuer Request accompanied by an Officer's Certificate and an
Opinion of Counsel meeting the applicable requirements of Section 11.01 hereof.

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<PAGE>

      Section 8.06 Opinion of Counsel. Except to the extent specifically
permitted by the terms of the Basic Documents, the Indenture Trustee shall
receive at least seven Business Days' prior notice when requested by the Issuer
to take any action pursuant to Section 8.05(a) hereof, accompanied by copies of
any instruments involved, and the Indenture Trustee may also require, as a
condition to such action, an Opinion of Counsel, in form and substance
satisfactory to the Indenture Trustee, from the Issuer concluding that all
conditions precedent to the taking of such action have been complied with and
such action will not materially and adversely impair the security for the Notes
or the rights of the Noteholders in contravention of the provisions of this
Indenture; provided, however, that such Opinion of Counsel shall not be required
to express an opinion as to the fair value of the Collateral. Counsel rendering
any such opinion may rely, without independent investigation, on the accuracy
and validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.

                                   ARTICLE IX

                             SUPPLEMENTAL INDENTURES

      Section 9.01 Supplemental Indentures Without the Consent of the
Noteholders. Without the consent of any Noteholder but with prior notice to the
Majority Noteholders, the Issuer and the Indenture Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Indenture Trustee, for any of the following purposes:

                  (i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;

                  (ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another Person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein and in
the Notes contained;

                  (iii) to add to the covenants of the Issuer, for the benefit
of the Noteholders, or to surrender any right or power herein conferred upon the
Issuer;

                  (iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;

                  (v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be inconsistent with
any other provision herein or in any supplemental indenture or to make any other
provisions with respect to matters or questions arising under this Indenture or
in any supplemental indenture; provided, however, that such action shall not
adversely affect the interests of the Noteholders; or

                  (vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes and to
add to or change any of the provisions of this Indenture as shall be necessary
to facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI hereof.

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<PAGE>

            The Indenture Trustee is hereby authorized to join in the execution
of any such supplemental indenture and to make any further appropriate
agreements and stipulations that may be therein contained.

      Section 9.02 Supplemental Indentures with Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with the consent of the Majority Noteholders, by Act of such Noteholders
delivered to the Issuer and the Indenture Trustee, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of any Noteholder under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of each Noteholder affected thereby:

            (a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal balance thereof, the interest rate
thereon or the Termination Price with respect thereto, change the provisions of
this Indenture relating to the application of collections on, or the proceeds of
the sale of, the Collateral to payment of principal of or interest on the Notes,
or change any place of payment where, or the coin or currency in which, any Note
or the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the application of
funds available therefor, as provided in Article V hereof, to the payment of any
such amount due on the Notes on or after the respective due dates thereof (or,
in the case of redemption, on or after the Redemption Date);

            (b) reduce the Percentage Interest, 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 compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;

            (c) modify or alter the provisions of the definition of the term
"Outstanding" or "Percentage Interest";

            (d) reduce the Percentage Interest of the Outstanding Notes, the
consent of the Holders of which is required to direct the Indenture Trustee to
direct the Issuer to sell or liquidate the Collateral pursuant to Section 5.04
hereof;

            (e) modify any provision of this Section 9.02 except to increase any
percentage specified herein or to provide that certain additional provisions of
this Indenture or the Basic Documents cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby;

            (f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Payment Date (including the calculation of any of the
individual components of such calculation) or to adversely affect the rights of
the Noteholders to the benefit of any provisions for the mandatory redemption of
the Notes contained herein; or

            (g) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Collateral or,
except as otherwise permitted or

                                       43
<PAGE>

contemplated herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive any Noteholder of the security provided by the
lien of this Indenture.

            The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon each Noteholder, whether theretofore of
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.

            In connection with requesting the consent of the Noteholders
pursuant to this Section 9.02, the Indenture Trustee shall mail to the Holders
of the Notes to which such amendment or supplemental indenture relates a notice
prepared by the Issuer setting forth in general terms the substance of such
supplemental indenture. It shall not be necessary for any Act of Noteholders
under this Section 9.02 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act shall approve the
substance thereof.

      Section 9.03 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02 hereof, shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Indenture Trustee
may, but shall not be obligated to, enter into any such supplemental indenture
that affects the Indenture Trustee's own rights, duties, liabilities or
immunities under this Indenture or otherwise.

      Section 9.04 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and shall be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.

      Section 9.05 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.

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<PAGE>

                                    ARTICLE X

                         REDEMPTION OF NOTES; PUT OPTION

      Section 10.01 Redemption. The Servicer may, at its option, effect an early
redemption of the Notes on any Payment Date on or after the Clean-up Call Date.
The Servicer shall effect such early termination in the manner specified in and
subject to the provisions of Section 10.02 of the Sale and Servicing Agreement.

            The Servicer shall furnish the Indenture Trustee with notice of any
such redemption in order to facilitate the Indenture Trustee's compliance with
its obligation to notify the Noteholders of such redemption in accordance with
Section 10.02 hereof.

      Section 10.02 Form of Redemption Notice. Notice of redemption under
Section 10.01 hereof shall be by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 10 days prior to the applicable
Redemption Date to each Noteholder, as of the close of business on the Record
Date preceding the applicable Redemption Date, at such Noteholder's address or
facsimile number appearing in the Note Register.

            All notices of redemption shall state:

                  (i) the Redemption Date;

                  (ii) that on the Redemption Date Noteholders shall receive the
Note Redemption Amount; and

                  (iii) the place where such Notes are to be surrendered for
payment of the Termination Price (which shall be the office or agency of the
Issuer to be maintained as provided in Section 3.02 hereof).

            Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name of the Issuer and at the expense of the Servicer. Failure to
give to any Noteholder notice of redemption, or any defect therein, shall not
impair or affect the validity of the redemption of any other Note.

      Section 10.03 Notes Payable on Redemption Date. The Notes to be redeemed
shall, following notice of redemption as required by Section 10.02 hereof (in
the case of redemption pursuant to Section 10.01) hereof, on the Redemption Date
become due and payable at the Note Redemption Amount and (unless the Issuer
shall default in the payment of the Note Redemption Amount) no interest shall
accrue thereon for any period after the date to which accrued interest is
calculated for purposes of calculating the Note Redemption Amount. The Issuer
may not redeem the Notes unless all outstanding obligations under the Notes have
been paid in full.

      Section 10.04 Put Option. The Majority Noteholders may, at their option,
put all or any portion of the Note Principal Balance of the Notes to the Issuer
on any date upon giving notice in the manner set forth in Section 10.05. On each
Put Date, the Issuer shall purchase the Note Principal Balance in the manner
specified in and subject to the provisions of Section 10.04 of the Sale and
Servicing Agreement.

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<PAGE>

      Section 10.05 Form of Put Option Notice. Notice of exercise of a Put
Option under Section 10.04 hereof shall be given by the Majority Noteholders
(including to the Indenture Trustee) by first-class mail, postage prepaid, or by
facsimile mailed or transmitted not later than 5 days prior to the date on which
the Notes shall be repurchased by the Issuer.

      Section 10.06 Notes Payable on Put Date. The Note Principal Balance to be
put to the Issuer shall, following notice of the exercise of the Put Option as
required by Section 10.05 hereof, on the Put Date become due and payable at the
Note Redemption Amount and (unless the Issuer shall default in the payment of
the Note Redemption Amount) no interest shall accrue thereon for any period
after the date to which accrued interest is calculated for purposes of
calculating the Note Redemption Amount.

                                   ARTICLE XI

                                  MISCELLANEOUS

      Section 11.01 Compliance Certificates and Opinions, etc. Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture (except with respect to the Servicer's
servicing activity in the ordinary course of its business), the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.

            Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

                  (1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;

                  (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;

                  (3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not such
covenant or condition has been complied with; and

                  (4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.

      Section 11.02 Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons

                                       46
<PAGE>

as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.

            Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which such officer's
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Servicer, the Loan Originator, the Issuer or the
Administrator, stating that the information with respect to such factual matters
is in the possession of the Servicer, the Loan Originator, the Issuer or the
Administrator, unless such counsel knows, or in the exercise of reasonable care
should know, that lie certificate or opinion or representations with respect to
such matters are erroneous.

            Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

            Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI hereof.

      Section 11.03 Acts of Noteholders.

            (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01 hereof)
conclusive in favor of the Indenture Trustee and the Issuer, if made in the
manner provided in this Section 11.03.

            (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.

                                       47
<PAGE>

            (c) The ownership of Notes shall be proved by the Note Register.

            (d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Noteholder shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.

      Section 11.04 Notices, etc., to Indenture Trustee and Issuer. Any request,
demand, authorization, direction, notice, consent, waiver or Act of Noteholders
or other documents provided or permitted by this Indenture shall be in writing
and if such request, demand, authorization, direction, notice, consent, waiver
or act of Noteholders is to be made upon, given or furnished to or filed with:

                  (i) the Indenture Trustee by any Noteholder or by the Issuer
shall be sufficient for every purpose hereunder if made, given, furnished or
filed in writing (including by facsimile) to or with the Indenture Trustee at
its Corporate Trust Office, or

                  (ii) the Issuer by the Indenture Trustee or by any Noteholder
shall be sufficient for every purpose hereunder if in writing and made, given,
furnished, filed or transmitted via facsimile to the Issuer at: Option One Owner
Trust 2003-4, c/o Wilmington Trust Company as Owner Trustee, One Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Department, telecopy number: (302) 636-4144, telephone number:
(302) 636-1000, or at any other address or facsimile number previously furnished
in writing to the Indenture Trustee by the Issuer or the Administrator. The
Issuer shall promptly transmit any notice received by it from the Noteholders to
the Indenture Trustee.

      Section 11.05 Notices to Noteholders: Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have duly been given.

            Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.

            In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture,

                                       48
<PAGE>

then any manner of giving such notice as shall be satisfactory to the Indenture
Trustee shall be deemed to be a sufficient giving of such notice.

      Section 11.06 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.

      Section 11.07 Successors and Assigns. All covenants and agreements in this
Indenture and the Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not. All agreements of the Indenture Trustee in this
Indenture shall bind its successors, co-trustees and agents.

      Section 11.08 Separability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

      Section 11.09 Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture.

      Section 11.10 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.

      Section 11.11 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

      Section 11.12 Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.

      Section 11.13 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee; provided, however, that the expense of such
Opinion of Counsel shall in no event be an expense of the Indenture Trustee) to
the effect that such recording is necessary either for the protection of the
Noteholders or any other Person secured hereunder or for the enforcement of any
right or remedy granted to the Indenture Trustee under this Indenture.

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<PAGE>

      Section 11.14 Trust Obligation. No recourse may be taken, directly or
indirectly. with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or, except as expressly provided for in
Article VI hereof, under this Indenture or any certificate or other writing
delivered in connection herewith or therewith, against (i) the Indenture Trustee
or the Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director, employee, agent or "control person" within the meaning of the
Securities Act and the Exchange Act, of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person may expressly have agreed (it being understood that the
Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such partner, owner or beneficiary of
the Issuer shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.

      Section 11.15 No Petition. The Indenture Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Depositor or the Issuer, or
join in any institution against the Depositor or the Issuer of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States federal or state bankruptcy or similar law,
in connection with any obligations relating to the Notes, this Indenture or any
of the Basic Documents.

      Section 11.16 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may reasonably be requested and at the expense
of the Servicer. The Indenture Trustee shall and shall cause its representatives
to hold in confidence all such information except to the extent disclosure may
be required by law (and all reasonable applications for confidential treatment
are unavailing) and except to the extent that the Indenture Trustee may
reasonably determine that such disclosure is consistent with its obligations
hereunder.

      Section 11.17 Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Indenture is executed and delivered
by Wilmington Trust Company, not individually or personally, but solely as Owner
Trustee of Option One Owner Trust 2003-4, in the exercise of the powers and
authority conferred and vested in it, (b) each of the representations,
undertakings and agreements herein made on the part of the Issuer is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose for binding
only the Issuer, (c) nothing herein contained shall be construed as creating any
liability on Wilmington Trust Company, individually or personally, to perform
any covenant either expressed or implied contained herein,

                                       50
<PAGE>

all such liability, if any, being expressly waived by the parties hereto and by
any Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Indenture or any other related documents.

                                       51
<PAGE>

      IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.

                                     OPTION ONE OWNER TRUST 2003-4

                                     By: Wilmington Trust Company not in its
                                         individual capacity but solely as Owner
                                         Trustee

                                     By: /s/ Joann A. Rozell
                                         ---------------------------------------
                                     Name: Joann A. Rozell
                                     Title: Financial Services Officer

                                     WELLS FARGO BANK MINNESOTA,
                                     NATIONAL ASSOCIATION, as Indenture
                                     Trustee

                                     By: _______________________________________
                                     Name: _____________________________________
                                     Title: ____________________________________

                                 Signature Page
                                       to
                                   Indenture

<PAGE>

      IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.

                                     OPTION ONE OWNER TRUST 2003-4

                                     By: Wilmington Trust Company not in its
                                         individual capacity but solely as Owner
                                         Trustee

                                     By: _______________________________________
                                     Name: _____________________________________
                                     Title: ____________________________________

                                     WELLS FARGO BANK MINNESOTA,
                                     NATIONAL ASSOCIATION, as Indenture
                                     Trustee

                                     By: /s/ Amy Doyle
                                         ---------------------------------------
                                     Name: Amy Doyle
                                     Title: Vice President

                                 Signature Page
                                       to
                                   Indenture

<PAGE>

STATE OF DELAWARE
                         ss.:

COUNTY OF NEW CASTLE

      BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Joann A. Rozell, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said
Wilmington Trust Company, a Delaware banking corporation, not in its individual
capacity, but solely as Owner Trustee on behalf of OPTION ONE OWNER TRUST
2003-4, a Delaware statutory trust, and that such person executed the same as
the act of said statutory trust for the purpose and consideration therein
expressed, and in the capacities therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ___ day of August, 2003.

                                            /s/ Anita E. Dallago
                                            -----------------------------------
                                            Notary Public

(Seal)
                                            ANITA E. DALLAGO
My commission expires:                      NOTARY PUBLIC
______________________                      MY Commission Expires August 3, 2003

                                 Signature Page
                                       to
                                   Indenture

<PAGE>

STATE OF Maryland
                 ss.:
COUNTY OF Howard

      BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared Amy Doyle, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 8th day of August, 2003.

                                            /s/ Lisa C. Carr
                                            -----------------------------------
                                            Notary Public

(Seal)

My commission expires:
______________________

LISA C. CARR
NOTARY PUBLIC
HOWARD COUNTY
MARYLAND
MY COMMISSION EXPIRES OCTOBER 17, 2005

                                 Signature Page
                                       to
                                   Indenture
<PAGE>

                                    EXHIBIT A

                                 FORM OF NOTES

            THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE MAXIMUM NOTE PRINCIPAL BALANCE SHOWN ON THE FACE HEREOF. ANY
PURCHASER OF THIS NOTE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY
INQUIRY OF THE INDENTURE TRUSTEE.

            THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

            THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG
AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(l), (2),(3) OR (7)
OF RULE 501 UNDER THE 1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE
WITH THE REQUIREMENTS OF THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

            THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS
RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR
ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (EACH, A "PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (II) IF THE TRANSFEREE IS A PLAN OR IS ACTING ON BEHALF OF OR
INVESTING THE ASSETS OF A PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT
LEAST ONE OF THE FOLLOWING PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN
SATISFIED: PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO
TRANSACTIONS EFFECTED BY AN "IN-

                                       55
<PAGE>

HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO TRANSACTIONS INVOLVING INSURANCE
COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING TO TRANSACTIONS INVOLVING BANK
COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING TO TRANSACTIONS INVOLVING
INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE 84-14 (RELATING TO
TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET MANAGER").

                                       56
<PAGE>

Maximum Note Principal Balance: $___________________________
Initial Percentage Interest: ________%
No.________

                          OPTION ONE OWNER TRUST 2003-4

                              MORTGAGE-BACKED NOTES

            OPTION ONE OWNER TRUST 2003-4, a Delaware statutory trust (the
"Issuer"), for value received, hereby promises to pay to_____________________,
or registered assigns (the "Noteholder"), the principal sum of__________________
($_________) or so much thereof as may be advanced and outstanding hereunder and
to pay interest on such principal sum or such part thereof as shall remain
unpaid from time to time, at the rate and at the times provided in the Sale and
Servicing Agreement and the Indenture. Principal of this Note is payable on each
Payment Date in an amount equal to the result obtained by multiplying (i) the
Percentage Interest of this Note by (ii) the principal amount distributed in
respect of such Payment Date.

            The Outstanding Note Principal Balance of this Note bears interest
at the Note Interest Rate. On each Payment Date amounts in respect of interest
on this Note will be paid in an amount equal to the result obtained by
multiplying (i) the Percentage Interest of this Note by (ii) the aggregate
amount paid in respect of interest on the Notes with respect to such Payment
Date.

            Capitalized terms used but not defined herein have the meanings set
forth in the Indenture (the "Indenture"), dated as of August 8, 2003 between the
Issuer and Wells Fargo Bank Minnesota, National Association, as Indenture
Trustee (the "Indenture Trustee") or, if not defined therein, the Sale and
Servicing Agreement (the "Sale and Servicing Agreement"), dated as of August 8,
2003 among the Issuer, the Depositor, the Servicer, the Loan Originator and the
Indenture Trustee on behalf of the Noteholders.

            By its acceptance of this Note, each Noteholder covenants and
agrees, until the earlier of (a) the termination of the Revolving Period and (b)
the Maturity Date, on each Transfer Date to advance amounts in respect of
Additional Note Principal Balance hereunder to the Issuer, subject to and in
accordance with the terms of the Indenture, the Sale and Servicing Agreement and
the Note Purchase Agreement.

            In the event of an advance of Additional Note Principal Balance by
the Noteholders as provided in Section 2.0l(c) of the Sale and Servicing
Agreement, each Noteholder shall, and is hereby authorized to, record on the
schedule attached to its Note the date and amount of any Additional Note
Principal Balance advanced by it, and each repayment thereof; provided that
failure to make any such recordation on such schedule or any error in such
schedule shall not adversely affect any Noteholder's rights with respect to its
Additional Note Principal Balance and its right to receive interest payments in
respect of the Additional Note Principal Balance held by such Noteholder.

            Absent manifest error, the Note Principal Balance of each Note as
set forth in the notations made by the related Noteholder on such Note shall be
binding upon the Indenture

                                       57
<PAGE>

Trustee and the Issuer; provided that failure by a Noteholder to make such
recordation on its Note or any error in such notation shall not adversely affect
any Noteholder's rights with respect to its Note Principal Balance and its right
to receive principal and interest payments in respect thereof.

            The Servicer may, at its option, effect an early redemption of the
Notes for an amount equal to the Note Redemption Amount on any Payment Date on
or after the Clean-up Call Date. The Servicer shall effect such early
termination by providing notice thereof to the Indenture Trustee and Owner
Trustee and by purchasing all of the Loans at a purchase price, payable in cash,
equal to the Termination Price.

            Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

            The statements in the legend set forth above are an integral part of
the terms of this Note and by acceptance hereof each Holder of this Note agrees
to be subject to and bound by the terms and provisions set forth in such legend.

            Unless the Certificate of authentication hereon shall have been
executed by an authorized officer of the Indenture Trustee, by manual signature,
this Note shall not entitle the Noteholder hereof to any benefit under the
Indenture or the Sale and Servicing Agreement and/or be valid for any purpose.

            THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED
WITHIN THE STATE OF NEW YORK AND WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PROVISIONS THEREOF.

                                       58
<PAGE>

            IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer, as of the date set
forth below.

Date: [________________]

                                        OPTION ONE OWNER TRUST 2003-4

                                        By: Wilmington Trust Company not in its
                                            individual capacity but solely as
                                            Owner Trustee

                                        By:
                                                  Authorized Signatory

                INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION

            This is one of the Notes designated above and referred to in the
within-mentioned Indenture.

Date: [_________________]

                                      WELLS FARGO BANK MINNESOTA,
                                      NATIONAL ASSOCIATION, as Indenture Trustee

                                      By:
                                                Authorized Signatory

                                       59
<PAGE>

                                [Reverse of Note]

            This Note is one of the duly authorized Notes of the Issuer,
designated as its Mortgage-Backed Notes (herein called the "Notes"), all issued
under the Indenture. Reference is hereby made to the Indenture and all
indentures supplemental thereto, and the Sale and Servicing Agreement for a
statement of the respective rights and obligations thereunder of the Issuer, the
Indenture Trustee and the Holders of the Notes. To the extent that any provision
of this Note contradicts or is inconsistent with the provisions of the Indenture
or the Sale and Servicing Agreement, the provisions of the Indenture or the Sale
and Servicing Agreement, as applicable, shall control and supersede such
contradictory or inconsistent provision herein. The Notes are subject to all
terms of the Indenture and the Sale and Servicing Agreement.

            The principal of and interest on this Note are payable in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied in accordance with the Indenture and
the Sale and Servicing Agreement.

            The entire unpaid principal amount of this Note shall be due and
payable on the earlier of the Maturity Date, the Redemption Date and the Final
Put Date, if any, pursuant to Articles X of the Sale and Servicing Agreement and
the Indenture. Notwithstanding the foregoing, the entire unpaid principal amount
of the Notes shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing and the Indenture Trustee, at the
direction or upon the prior written consent of the Majority Noteholders, has
declared the Notes to be immediately due and payable in the manner provided in
Section 5.02 of the Indenture. All principal payments on the Notes shall be made
pro rata to the Holders of the Notes entitled thereto.

            The Collateral secures this Note and all other Notes equally and
ratably without prejudice, priority or distinction between any Note and any
other Note. The Notes are nonrecourse obligations of the Issuer and are limited
in right of payment to amounts available from the Collateral, provided in the
Indenture. The Issuer shall not otherwise be liable for payments on the Notes,
and none of the owners, agents, officers, directors, employees, or successors or
assigns of the Issuer shall be personality liable for any amounts payable, or
performance due, under the Notes or the Indenture.

            Any installment of interest or principal on this Note shall be paid
on the applicable Payment Date to the Person in whose name this Note (or one or
more Predecessor Notes) is registered in the Note Register as of the close of
business on the related Record Date by wire transfer in immediately available
funds to the account specified in writing by the related Noteholder to the
extent provided by the Indenture and otherwise by check mailed to the
Noteholder.

            Any reduction in the principal amount of this Note (or any one or
more Predecessor Notes) effected by any payments made on any Payment Date shall
be binding upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. Any increase in the principal amount of this Note (or any
one or more Predecessor Notes) effected by payments to the Issuer

                                       60
<PAGE>

of Additional Note Principal Balances shall be binding upon the Issuer and shall
inure to the benefit of all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon.

            As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in the form attached hereto duly
executed by, the Holder hereof or such Holder's attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Securities Transfer Agent's Medallion Program
("STAMP"), and thereupon one or more new Notes of authorized denominations and
in the same aggregate principal amount will be issued to the designated
transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the Issuer may require
the Noteholder to pay a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees that no recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in-the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director employee or "control person" within the meaning of the
1933 Act and the Exchange Act of the Indenture Trustee or the Owner Trustee in
its individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.

            Each Noteholder, by acceptance of a Note or a beneficial interest in
a Note, covenants and agrees by accepting the benefits of the Indenture that
such Noteholder will not at any time institute against the Issuer, or join in
any institution against the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes or the Basic Documents.

            The Issuer has entered into the Indenture and this Note is issued
with the intention that, for federal, state and local income, single business
and franchise tax purposes, the Notes will qualify as indebtedness of the Issuer
secured by the Collateral. Each Noteholder, by acceptance of a Note, agrees to
treat the Notes for federal, state and local income, single business and
franchise tax purposes as indebtedness of the Issuer. Each Noteholder, by its
acceptance of a Note, represents and warrants that the number of ICA Owners with
respect to all of its Notes shall not exceed four.

                                       61
<PAGE>

            Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Indenture Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and none of the Issuer, the Indenture Trustee or any such agent shall
be affected by notice to the contrary.

            The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Majority Noteholders. The Indenture
also contains provisions permitting the Holders of Notes representing specified
Percentage Interests of the Outstanding Notes, on behalf of all of the
Noteholders, to waive compliance by the Issuer with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Note (or any one or more
Predecessor Notes) shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in-lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee to amend or waive certain terms and conditions set forth in
the Indenture without the consent of any Noteholder.

            The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.

            The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.

            No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.

            Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.

                                       62
<PAGE>

                          ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee:

            FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto:_________________________________________________________________
                        (name and address of assignee)
the within Note and all rights thereunder, aid hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.

Dated: _____________________

                                        _____________________________________*/

                                        Signature Guaranteed:
                                        _____________________________________*/

_____________________________
*/NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of STAMP.

                                       63
<PAGE>

                                Schedule to Note
                         dated as of [_________________]
                        of OPTION ONE OWNER TRUST 2003-4

<TABLE>
<CAPTION>
                        Amount of
Date of advance        advance of
 of Additional       Additional Note                             Aggregate Note
Note Principal          Principal            Percentage            Principal           Note Principal
    Balance              Balance              Interest              Balance            Balance of Note
- ---------------      ---------------         ----------          ---------------       ---------------
<S>                  <C>                     <C>                 <C>                   <C>
                                                100%
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
- ---------------      ---------------         ----------          ---------------       ---------------
</TABLE>

                                       64

<PAGE>

                                   EXHIBIT B-l

                    FORM OF RULE 144A TRANSFEROR CERTIFICATE

Wells Fargo Bank Minnesota, National Association
9062 Old Annapolis Road
Columbia, Maryland 21045

            Re: Option One Owner Trust 2003-4

            Reference is hereby made to the Indenture dated as of August 8, 2003
(the "INDENTURE") between Option One Owner Trust 2003-4 (the "TRUST") and Wells
Fargo Bank Minnesota. National Association (the "INDENTURE TRUSTEE").
Capitalized terms used but not defined herein shall have the meanings given to
them in the Sale and Servicing Agreement dated as of August 8, 2003 among the
Trust, Option One Loan Warehouse Corporation (the "DEPOSITOR"), Option One
Mortgage Corporation (the "SERVICER" and the "LOAN ORIGINATOR") and the
Indenture Trustee.

            The undersigned (the "TRANSFEROR") has requested a transfer of
$________________________ current principal balance Notes to [insert name of
transferee].

            In connection with such request, and in respect of such Notes, the
Transferor hereby certifies that such Notes are being transferred in accordance
with (i) the transfer restrictions set forth in the Indenture and the Notes and
(ii) Rule 144A under the Securities Act of 1933, as amended to a purchaser that
the Transferor reasonably believes is a "qualified institutional buyer" within
the meaning of Rule 144A purchasing for its own account or for the account of a
"qualified institutional buyer," which purchaser is aware that the sale to it is
being made in reliance upon Rule 144A, in a transaction meeting the requirements
of Rule 144A and in accordance with any applicable securities laws of any state
of the United States or any other applicable jurisdiction.

            This certificate and the statements contained herein are made for
your benefit and the benefit of the Depositor.

                                             ___________________________________
                                             [Name of Transferor]

                                             By:________________________________
                                             Name:
                                             Title:

Dated: _______________________,_____________

                                       65
<PAGE>

                                   EXHIBIT B-2

                       FORM OF TRANSFEREE CERTIFICATE FOR
                       INSTITUTIONAL ACCREDITED INVESTOR

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2003-4

            Re: Option One Owner Trust 2003-4

            In connection with our proposed purchase of $__________________Note
Principal Balance Mortgage-Backed Notes (the "Offered Notes") issued by Option
One Owner Trust 2003-4, we confirm that:

            (1) We understand that the Offered Notes have not been, and will not
be. registered under the Securities Act of 1933, as amended (the "1933 ACT") or
any state securities laws, and may not be sold except as permitted in the
following sentence. We agree, on our own behalf and on behalf of any accounts
for which we are acting as hereinafter stated, that if we should sell any
Offered Notes we will do so only (A) pursuant to a registration statement which
has been declared effective under the 1933 Act. (B) for so long as the Offered
Notes are eligible for resale pursuant to Rule 144A under the 1933 Act, to a
Person we reasonably believe is a "qualified institutional buyer" as defined in
Rule 144A that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the transfer is being made in
reliance on Rule 144A. (C) to an institutional "accredited investor" within the
meaning of subparagraph (a)(l), (2), (3) or (7) of Rule 501 under the 1933 Act
(an "INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Offered Notes for
its own account, or for the account of such an Institutional Accredited
Investor, for investment purposes and not with a view to, or for offer or sale
in connection with, any distribution in violation of the 1933 Act, in each case
in compliance with the requirements of the Indenture dated as of August 8, 2003
between Option One Owner Trust 2003-4 and Wells Fargo Bank Minnesota National
Association, as Indenture Trustee, and applicable state securities laws; and we
further agree, in the capacities stated above, to provide to any person
purchasing any of the Offered Notes from us a notice advising such purchaser
that resales of the Offered Notes are restricted as stated herein.

            (2) We understand that, in connection with any proposed resale of
any Offered Notes to an Institutional Accredited Investor, we will be required
to furnish to the Indenture Trustee and the Depositor a certification from such
transferee as provided in Section 2.12 of the Indenture to confirm that the
proposed sale is being made pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the 1933 Act and applicable
state securities laws. We further understand that the Offered Notes purchased by
us will bear a legend to the foregoing effect.

            (3) We are acquiring the Offered Notes for investment purposes and
not with a view to, or for offer or sale in connection with, any distribution in
violation of the 1933 Act. We have such knowledge and experience in financial
and business matters as to be capable of

                                       66
<PAGE>

evaluating the merits and risks of our investment in the Offered Notes, and we
and any account for which we are acting are each able to bear the economic risk
of such investment.

            (4) We are an Institutional Accredited Investor and we are acquiring
the Offered Notes purchased by us for our own account or for one or more
accounts (each of which is an Institutional Accredited Investor) as to each of
which we exercise sole investment discretion.

            (5) We have received such information as we deem necessary in order
to make our investment decision.

            (6) We either (i) are not, and are not acquiring the Offered Notes
on behalf of or with the assets of, an employee benefit plan or other retirement
plan or arrangement subject to Title I of ERISA or Section 4975 of the Code, or
(b) are, or are acquiring the Offered Notes on behalf of or with the assets of
an employee benefit plan or other retirement plan or arrangement subject to
Title I of ERISA of Section 4975 of the Code and the conditions for exemptive
relief under at least one of the following prohibited transaction class
exemptions have been satisfied: Prohibited Transaction Class Exemption ("PTCE")
96-23 (relating to transactions effected by an "in-house asset manager"), PTCE
95-60 (relating to transactions involving insurance company general accounts),
PTCE 91-38 (relating to transactions involving bank collective investment
funds), PTCE 90-1 (relating to transactions involving insurance company pooled
separate accounts), and PTCE 84-14 (relating to transactions effected by a
"qualified professional asset manager").

            Terms used in this letter which are not otherwise defined herein
have the respective meanings assigned thereto in the Indenture.

            You and the Depositor are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.

                                             ___________________________________
                                             [Name of Transferor]

                                             By:________________________________
                                             Name:
                                             Title:

Dated: ____________________,________

                                       67
<PAGE>

                                   EXHIBIT B-3

                    FORM OF RULE 144A TRANSFEREE CERTIFICATE

Wells Fargo Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services - Option One Owner Trust 2003-4

            Re: Option One Owner Trust 2003-4

            1. The undersigned is the ________________________ of___________
_____________ (the "INVESTOR"), a [corporation duly organized] and existing
under the laws of ___________________________ on behalf of which he makes this
affidavit.

            2. The Investor either (i) is not, and is not acquiring the Offered
Notes on behalf of or with the assets of, an employee benefit plan or other
retirement plan or arrangement subject to Title I of ERISA or Section 4975 of
the Code, or (b) is, or is acquiring the Offered Notes on behalf of or with the
assets of, an employee benefit plan or other retirement plan or arrangement
subject to Title I of ERISA of Section 4975 of the Code and the conditions for
exemptive relief under at least one of the following prohibited transaction
class exemptions have been satisfied: Prohibited Transaction Class Exemption
("PTCE") 96-23 (relating to transactions effected by an "in-house asset
manager'), PTCE 93-60 (relating to transactions involving insurance company
general accounts), PTCE 91-3f (relating to transactions involving bank
collective investment funds), PTCE 90-1 (relating to transactions involving
insurance company pooled separate accounts), and PTCE 84-14 (relating to
transactions effected by a "qualified professional asset manager").

            3. The Investor understands that the Offered Notes have not been,
and will not be, registered under the Securities Act of 1933, as amended (the
"1933 Act") or any state securities laws, and may not be sold except as
permitted in the following sentence. The Investor agrees, on its own behalf and
on behalf of any accounts for which it is acting as hereinafter stated, that if
it should sell any Offered Notes it will do so only (A) pursuant to a
registration statement which has been declared effective under the 1933 Act, (B)
for so long as the Offered Notes are eligible for resale pursuant to Rule 144A
under the 1933 Act, to a Person it reasonably believes is a "qualified
institutional buyer" as defined in Rule 144A that purchases for its own account
or for the account of a qualified institutional buyer to whom notice is given
that the transfer is being made in reliance on Rule 144A, (C) to an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the 1933 Act (an "Institutional Accredited
Investor") that is acquiring the Offered Notes for its own account, or for the
account of such an Institutional Accredited Investor, for investment purposes
and not with a view to, or for offer or sale in connection with, any
distribution in violation of the 1933 Act, in each case in compliance with the
requirements of the Indenture dated as of August 8, 2003 between Option One
Owner Trust 2003-4 and Wells Fargo Bank Minnesota, National Association, as
Indenture Trustee, and applicable state securities laws; and the Investor
further agrees, in the capacities stated above, to provide to any person
purchasing any of the Offered Notes from it a notice advising such purchaser
that resales of the Offered Notes are restricted as stated herein.

                                       68
<PAGE>

                   [FOR TRANSFERS IN RELIANCE UPON RULE 144A]

            4. The Investor is a "qualified institutional buyer" (as such term
is defined under Rule 144A under the Securities Act of 1933, as amended (the
"1933 ACT"), and is acquiring the Offered Notes for its own account or as a
fiduciary or agent for others (which others also are "qualified institutional
buyers"). The Investor is familiar with Rule 144A under the 1933 Act, and is
aware that the transferor of the Offered Notes and other parties intend to rely
on the statements made herein and the exemption from the registration
requirements of the 1933 Act provided by Rule 144A.

                                             ___________________________________
                                             [Name of Transferor]

                                             By:________________________________
                                             Name:
                                             Title:

Dated: __________________,__________

                                       69

<PAGE>

                                    EXHIBIT C

            THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.

            THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH NOTE ONLY (A) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE 1933 ACT, (B) FOR SO LONG
AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE 1933 ACT, TO
A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE 1933 ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (C) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE 1933 ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT,
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE 1933 ACT, IN EACH CASE IN COMPLIANCE
WITH THE REQUIREMENTS OF THE INDENTURE AND APPLICABLE STATE SECURITIES LAWS.

            THIS NOTE MAY NOT BE TRANSFERRED UNLESS THE INDENTURE TRUSTEE HAS
RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO THE EFFECT THAT EITHER (I) THE
TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT PLAN OR
ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (EACH, A"PLAN"), AND IS NOT ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN OR (II) IF THE TRANSFEREE IS A PLAN, OR IS ACTING ON BEHALF OF OR
INVESTING THE ASSETS OF A PLAN, THE CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT
LEAST ONE OF THE FOLLOWING PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN
SATISFIED: PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO
TRANSACTIONS EFFECTED BY AN "IN-HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO
TRANSACTIONS INVOLVING INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING
TO TRANSACTIONS INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING
TO TRANSACTIONS INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE
84-14 (RELATING TO TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET
MANAGER").

                                       70
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.66
<SEQUENCE>26
<FILENAME>c91685exv10w66.txt
<DESCRIPTION>NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.66

================================================================================
                                                                  EXECUTION COPY

                             NOTE PURCHASE AGREEMENT

                           Dated as of August 8, 2003

                                     among

                        OPTION ONE MORTGAGE CORPORATION,
                                as the Servicer,

                     OPTION ONE LOAN WAREHOUSE CORPORATION,
                               as the Depositor,

                         OPTION ONE OWNER TRUST 2003-4,
                                 as the Issuer,

                    FALCON ASSET SECURITIZATION CORPORATION,
                     JUPITER SECURITIZATION CORPORATION, and
                   PREFERRED RECEIVABLES FUNDING CORPORATION,
                           as the Conduit Purchasers,

                    THE FINANCIAL INSTITUTIONS PARTY HERETO,
                          as the Committed Purchasers,

                                       and

                       BANK ONE, NA (MAIN OFFICE CHICAGO),
                               as the Note Agent

================================================================================
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
ARTICLE I DEFINITIONS....................................................................        1

    SECTION 1.01. Defined Terms..........................................................        1
    SECTION 1.02. Accounting Terms; Other Terms..........................................        7
    SECTION 1.03. Other Rules of Construction............................................        7
    SECTION 1.04. Computation of Time Periods............................................        8

ARTICLE II PURCHASE AND SALE; PURCHASE COMMITMENT........................................        8

    SECTION 2.01. Purchase and Sale of the Note..........................................        8
    SECTION 2.02. [Reserved].............................................................        8
    SECTION 2.03. Increases and Decreases in the Note Principal Balance; Decreases in
                  the Maximum Note Principal Balance.....................................        8
    SECTION 2.04. Fees...................................................................        9
    SECTION 2.05. Extension of Term......................................................        9
    SECTION 2.06. Calculation and Payment of Monthly Interest............................       10
    SECTION 2.07. Increased Costs...............................................'........       11
    SECTION 2.08. Increased Capital......................................................       12
    SECTION 2.09. Taxes..................................................................       13

ARTICLE III CLOSING......................................................................       15

    SECTION 3.01. Closing................................................................       15
    SECTION 3.02. Transactions to be Effected at the Closing.............................       15

ARTICLE IV PURCHASER CONDITIONS PRECEDENT................................................       16

    SECTION 4.01. Conditions Precedent to the Purchase of the Note.......................       16
    SECTION 4.02. Conditions Precedent to Principal Balance Increases....................       18

ARTICLE V REPRESENTATIONS AND WARRANTIES.................................................       19

    SECTION 5.01. Representations and Warranties of the Depositor........................       19
    SECTION 5.02. Representations and Warranties of the Servicer.........................       20
    SECTION 5.03. Representations and Warranties of the Issuer...........................       23
    SECTION 5.04. Representations and Warranties of the Note Agent and the
                  Purchasers.............................................................       24

ARTICLE VI COVENANTS OF THE ISSUER, THE DEPOSITOR AND THE SERVICER.......................       25

    SECTION 6.01. Covenants of the Issuer, the Depositor and the Servicer................       25
    SECTION 6.02. Reporting Requirements of the Depositor and the Servicer...............       26
    SECTION 6.03. Optional Repurchase....................................................       27
    SECTION 6.04. Change in Name; Jurisdiction of Organization...........................       27
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                                             <C>
ARTICLE VII INDEMNIFICATION..............................................................       27

    SECTION 7.01. Indemnification by the Depositor and the Servicer......................       27
    SECTION 7.02. Costs and Expenses.....................................................       28

ARTICLE VIII THE NOTE AGENT..............................................................       29

    SECTION 8.01. Authorization and Action...............................................       29
    SECTION 8.02. Note Agent's Reliance, Etc.............................................       30
    SECTION 8.03. Note Agent and Affiliates..............................................       30
    SECTION 8.04. Purchase Decision......................................................       30
    SECTION 8.05. Indemnification........................................................       31
    SECTION 8.06. Successor Note Agent...................................................       31

ARTICLE IX MISCELLANEOUS.................................................................       31

    SECTION 9.01. Amendments, Etc........................................................       31
    SECTION 9.02. Notices, Etc...........................................................       32
    SECTION 9.03. No Waiver; Remedies....................................................       32
    SECTION 9.04. Binding Effect; Assignability..........................................       32
    SECTION 9.05. Note as Evidence of Indebtedness.......................................       34
    SECTION 9.06. Governing Law..........................................................       34
    SECTION 9.07. No Proceedings.........................................................       34
    SECTION 9.08. Execution in Counterparts; Severability................................       35
    SECTION 9.09. No Recourse............................................................       35
    SECTION 9.10. Confidentiality........................................................       36
    SECTION 9.11. Limitation on Liability................................................       36
</TABLE>

SCHEDULES AND EXHIBITS

Schedule I     Commitments
Schedule II    Notice Addresses

                                       ii

<PAGE>

      THIS NOTE PURCHASE AGREEMENT dated as of August 8, 2003, is among OPTION
ONE MORTGAGE CORPORATION, a California corporation, as Servicer, OPTION ONE LOAN
WAREHOUSE CORPORATION, a Delaware corporation, as Depositor, OPTION ONE OWNER
TRUST 2003-4, a Delaware business trust, as the Issuer, FALCON ASSET
SECURITIZATION CORPORATION, a Delaware corporation ("Falcon"), JUPITER
SECURITIZATION CORPORATION, a Delaware corporation ("Jupiter") PREFERRED
RECEIVABLES FUNDING CORPORATION, Delaware corporation ("PREFCO") (Falcon,
Jupiter and PREFCO are collectively referred to as the "Conduit Purchasers" and
each, individually, a "Conduit Purchaser"), THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME, as committed purchasers (the "Committed Purchasers"
and, together with the Conduit Purchaser, the "Purchasers") and BANK ONE, NA
(MAIN OFFICE CHICAGO), a national banking association ("Bank One"), as agent
(the "Note Agent") for the Purchasers and the other "Owners" (as defined below).

      In consideration of the representations, warranties and agreements herein
contained, the parties agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      SECTION 1.01. Defined Terms. As used herein, the following terms shall
have the meanings specified below. Capitalized terms used herein that are not
otherwise defined shall have the meanings ascribed thereto in the Sale and
Servicing Agreement or the Indenture, as the case may be.

      "Act" means the Securities Act of 1933, as amended.

      "Additional Amounts" means, for each Accrual Period, an amount equal to
the sum of (i) the aggregate amount payable to all Affected Parties pursuant to
Sections 2.07, 2.08 and 2.09 in respect of such Accrual Period and (ii) the
aggregate of such amounts with respect to prior Accrual Periods which remain
unpaid.

      "Adjusted LIBO Rate" means, for any Accrual Period, an interest rate per
annum equal to the rate per annum obtained by dividing (i) the LIBO Rate in
effect for such Accrual Period by (ii) a percentage equal to 100% minus the
Eurodollar Reserve Percentage for such Accrual Period.

      "Affected Party" means each Purchaser, the Note Agent, each Liquidity
Provider, and any permitted assignee of any Purchaser or any Liquidity Provider.

      "Agreement" or "Note Purchase Agreement" means this note purchase
agreement and any supplements, amendments, exhibits and schedules hereto.

      "Alternate Base Rate" means a fluctuating interest rate per annum as shall
be in effect from time to time, which rate per annum shall at all times be equal
to the highest of:

                                        1

<PAGE>

            (a) the rate of interest announced publicly by Bank One in Chicago,
      Illinois, from time to time as Bank One's prime rate;

            (b) 1/2 of one percent above the latest three-week moving average of
      secondary market morning offering rates in the United States for
      three-month certificates of deposit of major United States money market
      banks, such three-week moving average being determined weekly on each
      Monday (or, if any such day is not a Business Day on the next succeeding
      Business Day) for the three-week period ending on the previous Friday by
      Bank One on the basis of such rates reported by certificate of deposit
      dealers to and published by the Federal Reserve Bank of New York or, if
      such publication shall be suspended or terminated, on the basis of
      quotations for such rates received by Bank One from three New York
      certificate of deposit dealers of recognized standing selected by Bank
      One, in either case adjusted to the nearest 1/4 of one percent or, if
      there is no nearest 1/4 of one percent, to the next higher 1/4 of one
      percent; or

            (c) 1/2 of one percent per annum above the Federal Funds Rate.

      "Assignee Rate" for any Accrual Period means an interest rate per annum
equal to the Adjusted LIBO Rate plus 3.0%; provided, however, that (i) in the
case of any Accrual Period of less than one month, the "Assignee Rate" for such
Accrual Period shall be calculated as the Adjusted LIBO Rate as if such Accrual
Period has a duration of one month; and (ii) if it shall become unlawful for
Bank One to obtain funds in the London interbank market in order to make, fund
or maintain the Note Principal Balance or deposits in dollars (in the applicable
amounts) are not being offered by Bank One in the London interbank market, then
the "Assignee Rate" for any Accrual Period shall be calculated using an interest
rate per annum equal to the Alternate Base Rate.

      "Asset Purchase Agreement" means any one or more asset purchase, transfer
or similar liquidity agreement, entered into at any time pursuant to which a
Purchaser may from time to time assign part or all of its interests in the Note
held by such Purchaser to a Liquidity Provider, as such agreements may be
amended, restated, supplemented or modified from time to time.

      "Bank One" means Bank One, NA, a national banking association.

      "Breakage Costs" means, for each Owner for each funding period, to the
extent that an Owner is funding the maintenance of its investment in the Note
during such funding period through the issuance of Commercial Paper Notes or at
the Adjusted LIBO Rate, during which the amount of such investment is reduced
(in whole or in part) prior to the end of the period for which it was originally
scheduled to remain outstanding (the amount of such reduced investment being
referred to as the "Allocated Amount"), the excess of (i) the sum of (a) the
discount or interest that would have accrued on the Allocated Amount during the
remainder of such funding period if such reduction had not occurred and (b)
other costs and expenses incurred by such Owner as a result of such reduction
(including costs incurred due to the related early termination of any agreement
entered into for the purpose of hedging such Owner's obligations under this
Agreement) over (ii) the net income scheduled to be received by such Owner from
investing the Allocated Amount for the remainder of such funding period, it
being understood that in investing

                                       2
<PAGE>

such Allocated Amount such Owner will, but without limitation to its discretion,
endeavor to minimize the associated Breakage Costs.

      "Business Day" means a day that is (i) a "Business Day" as such term is
defined in the Sale and Servicing Agreement and (ii) when used in connection
with the Adjusted LIBO Rate, a day other than a day on which banking
institutions in London, England, trading in Dollar deposits in the London
interbank market are authorized or obligated by law or executive order to be
closed.

      "Closing" shall have the meaning specified in Section 3.01.

      "Closing Date" shall have the meaning specified in Section 3.01.

      "Collection Date" means the earliest Business Day following the
termination (as opposed to suspension) of the Revolving Period on which the Note
Principal Balance shall have been reduced to zero and all Monthly Interest and
all other amounts due to the Owners shall have been paid in full.

      "Commercial Paper Notes" means short-term promissory notes issued or to be
issued by a Conduit Purchaser to fund its investments in accounts receivable and
other financial assets.

      "Commitment" means with respect to each Committed Purchaser on any date,
the dollar amount set forth next to such Committed Purchaser's name on Schedule
I hereto, as such amount may be reduced pursuant to Section 2.03 and as such
amount may be increased from time to time on terms and conditions acceptable to
the Depositor and such Committed Purchaser in its sole discretion; provided,
that upon any other Person becoming a Committed Purchaser hereunder as a result
of any assignment pursuant to Section 9.04, the Commitment of the assigning
Committed Purchaser as in effect immediately prior to such assignment shall be
allocated as between the assigning Committed Purchaser and such assignee
Committed Purchaser as such Persons shall so designate in a notice to the Note
Agent, and thereafter such respective allocated amounts shall be such Committed
Purchasers' respective Commitments.

      "Commitment Termination Date" means August 6, 2004, as such date may be
extended in accordance with Section 2.05.

      "Committed Purchaser" shall have the meaning specified in the Preamble
hereto.

      "Conduit Purchaser" shall have the meaning specified in the Preamble
hereto.

      "CP Rate" means, for each Conduit Purchaser for any Accrual Period, the
per annum rate equivalent to the weighted average of the per annum rates paid or
payable by such Conduit Purchaser from time to time as interest on or otherwise
(by means of interest rate hedges or otherwise) in respect of the Commercial
Paper Notes issued by such Conduit Purchaser that are allocated, in whole or in
part, by the Note Agent (on behalf of such Conduit Purchaser) to fund or
maintain its interest in the Note during such Accrual Period, as determined by
the Note Agent (on behalf of such Conduit Purchaser) and reported to the
Servicer and the Indenture Trustee,

                                       3
<PAGE>

which rates shall reflect and give effect to the commissions of placement agents
and dealers in respect of such promissory notes, to the extent such commissions
are allocated, in whole or in part, to such promissory notes by the Note Agent
(on behalf of such Conduit Purchaser); provided, however, that if any component
of such rate is a discount rate, in calculating the "CP Rate" for such Accrual
Period, the Note Agent shall for such component use the rate resulting from
converting such discount rate to an interest bearing equivalent rate per annum.

      "Depositor" means Option One Loan Warehouse Corporation, in its capacity
as depositor under the Sale and Servicing Agreement.

      "Eurocurrency Liabilities" shall have the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.

      "Eurodollar Reserve Percentage" for any Accrual Period means the reserve
percentage applicable to Bank One during such Accrual Period under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) (or if more than one such percentage shall be so applicable,
the daily average of such percentages for those days in such Accrual Period
during which any such percentage shall be so applicable) under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for Bank One in respect of liabilities or assets consisting of or
including Eurocurrency Liabilities having a term equal to such Accrual Period.

      "Excluded Taxes" shall have the meaning specified in Section 2.09(a).

      "Federal Funds Rate" means, for any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day for such transactions received by Bank
One from three Federal funds brokers of recognized standing selected by it.

      "Fee Letter" means the letter agreement, dated as of the Closing Date,
among the Depositor, the Servicer, and the Note Agent, regarding certain fees
payable under or in connection with this Agreement, as the same may be amended,
restated, supplemented or otherwise modified form time to time.

      "Fees" shall have the meaning specified in Section 2.04 hereof.

      "Governmental Actions" means any and all consents, approvals, permits,
orders, authorizations, waivers, exceptions, variances, exemptions or licenses
of, or registrations, declarations or filings with, any Governmental Authority
required under any Governmental Rules.

                                       4
<PAGE>

      "Governmental Authority" means the United States of America, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government,

      "Governmental Rules" means any and all laws, statutes, codes, rules,
regulations, ordinances, orders, writs, decrees and injunctions of any
Governmental Authority and any and all legally binding conditions, standards,
prohibitions, requirements and judgments of any Governmental Authority.

      "Increase Date" shall have the meaning specified in Section 2.03(c).

      "Indenture" means the Indenture, dated as of August 8, 2003, between the
Issuer and the Indenture Trustee, as the same may be amended, supplemented or
otherwise modified from time to time.

      "Indenture Trustee" means Wells Fargo Bank Minnesota, National
Association, a national banking association, in its capacity as trustee under
the Indenture, its successors in interest and any successor indenture trustee
under the Indenture.

      "Interpretation" as used in Sections 2.07 and 2.08 with respect to any law
or regulation, means the interpretation or application of such law or regulation
by any Governmental Authority (including any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government), central bank, accounting standards board (including the
Financial Accounting Standards Board), financial services industry advisory body
or any comparable entity.

      "Issuer" means Option One Owner Trust 2003-4, a Delaware business trust.

      "LIBO Rate" means, with respect to any Accrual Period, the rate per annum
equal the applicable British Bankers' Association Interest Settlement Rate for
deposits in U.S. dollars appearing on Reuters Screen FRBD as of 11:00 a.m.
(London time) two Business Days prior to the first day of the relevant Accrual
Period, and having a maturity equal to such Accrual Period, provided that, (1)
if Reuters Screen FRBD is not available to the Note Agent for any reason, the
applicable LIBO Rate for the relevant Accrual Period shall instead be the
applicable British Bankers' Association Interest Settlement Rate for deposits in
U.S. dollars as reported by any other generally recognized financial information
service as of 11:00 a.m. (London time) two Business Days prior to the first day
of such Accrual Period, and having a maturity equal to such Accrual Period, and
(2) if no such British Bankers' Association Interest Settlement Rate is
available to the Note Agent, the applicable LIBO Rate for the relevant Accrual
Period shall instead be the rate determined by the Note Agent to be the rate at
which it offers to place deposits in U.S. dollars with first-class banks in the
London interbank market at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Accrual Period, in the approximate amount to
be funded at the LIBO Rate and having a maturity equal to such Accrual Period.

                                       5
<PAGE>

      "Liquidity Provider" means a financial institution providing liquidity
support to or for the account of any Conduit Purchaser pursuant to or in
connection with an Asset Purchase Agreement.

      "Losses" shall have the meaning specified in Section 7.01(a).

      "Maximum Note Principal Balance" means $1,000,000,000, as such amount may
be increased or decreased in accordance with the terms of this Agreement.

      "Monthly Interest" means with respect to any Payment Date, an amount equal
to the sum of (i) the product of (a) the Note Interest Rate in effect with
respect to the Accrual Period ending immediately prior to such Payment Date, (b)
the average daily Note Principal Balance during such Accrual Period, and (c) a
fraction the numerator of which is the actual number of days in such Accrual
Period and the denominator of which is 360, plus (ii) all Breakage Costs
incurred by Owners during the immediately preceding Accrual Period, plus (iii)
all Fees owed to the Note Agent and the Owners for the Accrual Period ending
immediately prior to such Payment Date.

      "Note" means the Option One Owner Trust 2003-4 Mortgage-Backed Note issued
by the Issuer pursuant to the Indenture.

      "Note Interest Rate" means, for any Accrual Period:

            (i) to the extent that a Conduit Purchaser funds or maintains its
      interest in the Note by issuing its Commercial Paper Notes, the CP Rate,

            (ii) if and to the extent that a Conduit Purchaser elects in its
      sole discretion not to fund or maintain, or is not able to fund or
      maintain, its interest in the Note for such Accrual Period by the issuance
      of its Commercial Paper Notes, or if and to the extent that a Committed
      Purchaser funds or maintains an interest in the Note, a rate equal to the
      Assignee Rate for such Accrual Period.

            (iii) at any time following the occurrence of an Event of Default,
      the "Note Interest Rate" for each Accrual Period shall be the sum of the
      Alternate Base Rate plus 3.0% per annum.

      "Other Taxes" means any present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies that arise from
any payment or deposit required to be made hereunder, under the Sale and
Servicing Agreement or the Indenture or from the execution, delivery or
registration of, or otherwise with respect to, any of the foregoing.

      "Owner" means each Purchaser, each Liquidity Provider, and all other
owners by assignment, participation or otherwise of the Note or any interest
therein.

      "Owner Trustee" means Wilmington Trust Company, not in its individual
capacity but solely as owner trustee under the Trust Agreement.

                                       6
<PAGE>

      "Principal Balance Increase" shall have the meaning specified in Section
2.03.

      "Purchaser" shall have the meaning specified in the preamble hereto.

      "Required Owners" means, at any time, those Owners owning interests in the
Note aggregating 66-2/3% of the Note Principal Balance at such time.

      "Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of August 8, 2003, among the Issuer, the Depositor, the Servicer and
the Indenture Trustee, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

      "Taxes" shall have the meaning specified in Section 2.09(a).

      "Transferee" shall have the meaning specified in Section 9.04(d).

      "Trust Agreement" means the Trust Agreement dated as of August 8, 2003,
between the Depositor and the Owner Trustee, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

      "UCC" means the Uniform Commercial Code as from time to time in effect in
the applicable jurisdiction.

      SECTION 1.02. Accounting Terms; Other Terms. All accounting terms used in
this Agreement shall, unless otherwise specifically provided, have the meanings
customarily given to them in accordance with generally accepted United States
accounting principles or United States regulatory accounting principles, as
applicable, as in effect from time to time, and all financial computations
hereunder shall, unless otherwise specifically provided, be computed in
accordance with generally accepted United States accounting principles or United
States regulatory accounting principles, as applicable, as in effect from time
to time, consistently applied. All terms used in Article 9 of the UCC in the
State of New York, and not specifically defined herein, are used herein as
defined in such Article 9.

      SECTION 1.03. Other Rules of Construction. References in this Agreement to
sections, schedules and exhibits are to sections of and schedules and exhibits
to this Agreement unless otherwise indicated. The words "hereof, "herein",
"hereunder" and comparable terms refer to the entirety of this Agreement and not
to any particular article, Section or other subdivision hereof or attachment
hereto. Words in the singular include the plural and in the plural include the
singular. Unless the context otherwise requires, the word "or" is not exclusive.
The word "including" shall be deemed to mean "including, without limitation".
The Section and article headings and table of contents contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Except as otherwise specified
herein, all references herein (i) to any Person shall be deemed to include such
Person's successors and assigns and (ii) to any Governmental Rule or contract
specifically defined or referred to herein shall be deemed references to such
Governmental Rule or contract as the same

                                       7
<PAGE>

may be supplemented, amended, waived, consolidated, replaced or modified from
time to time, but only to the extent permitted by, and effected in accordance
with, the terms thereof.

      SECTION 1.04. Computation of Time Periods. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each mean "to but excluding."

                                   ARTICLE II
                     PURCHASE AND SALE; PURCHASE COMMITMENT

      SECTION 2.01. Purchase and Sale of the Note. On the terms and subject to
the conditions set forth in this Agreement (including, without limitation, the
conditions precedent set forth in Article IV), and in reliance on the covenants,
representations, warranties and agreements herein set forth, the Issuer agrees
to sell, transfer and deliver to the Note Agent, for the benefit of the
Purchasers, at the Closing, and the Purchasers agree to purchase from the
Issuer, at the Closing, the Note.

      SECTION 2.02. [Reserved].

      SECTION 2.03. Increases and Decreases in the Note Principal Balance;
Decreases in the Maximum Note Principal Balance.

      (a) Subject to the terms and conditions set forth in Section 4.02 hereof,
the Conduit Purchasers may, in their sole discretion, and the Committed
Purchasers shall during the Revolving Period, fund the applicable portion of any
increase to the Note Principal Balance (a "Principal Balance Increase")
requested by the Issuer from the Purchasers in accordance with the procedures
described in Section 2.06 of the Sale and Servicing Agreement; provided,
however, that at no time shall (i) the Principal Balance exceed the Maximum
Principal Balance, or (ii) the Note Principal Balance allocable to any Committed
Purchasers exceed such Committed Purchaser's Commitment.

      (b) Each request for a Principal Balance Increase shall be deemed to be a
request that the Conduit Purchasers fund such Principal Balance Increase. To the
extent a Conduit Purchaser elects not to fund its share of any Principal Balance
Increase requested by the Issuer, each related Committed Purchaser shall fund
its pro rata share of the portion of such Principal Balance Increase allocated
to such Conduit Purchaser. Each Conduit Purchaser shall provide prompt notice to
the Note Agent if such Conduit Purchaser elects not to fund its share of a
Principal Balance Increase (and the Note Agent shall forward such notice to the
Servicer, the Depositor and the Issuer).

      (c) Upon the satisfaction of the conditions precedent set forth in Section
4.02 hereof on the date on which the Issuer has requested a Principal Balance
Increase to occur (the "Increase Date"), each Purchaser funding a portion of the
requested Principal Balance Increase shall deliver to the Note Agent funds in an
amount equal to the portion of the Principal Balance Increase allocated to such
Purchaser by the Note Agent. Upon its receipt of such funds, the Note

                                       8
<PAGE>

Agent will remit such amount, in same day funds, to the Advance Account in
accordance with the Sale and Servicing Agreement.

      (d) On any date, the Note Principal Balance may be decreased in accordance
with the Sale and Servicing Agreement. Any such reductions to the Note Principal
Balance and any such reductions on any other date to the Note Principal Balance
shall be applied to reduce the Note Principal Balances allocated to the
interests in the Note held by Purchasers hereunder as determined by the Note
Agent, provided, that each such Purchaser which is a Committed Purchaser shall
be allocated its pro rata share of any such reduction.

      (e) Notwithstanding anything to the contrary contained herein, if any
Principal Balance Increase is not made on the date specified by the Issuer in
its written request therefor delivered pursuant to Section 2.06 of the Sale and
Servicing Agreement, the Issuer shall indemnify each Affected Party against any
reasonable loss, cost or expense incurred by such Affected Party as a result of
such occurrence, including, without limitation, any reasonable loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Affected Party to fund such anticipated Principal
Balance Increase; provided, however, that the Issuer shall not be obligated to
indemnify the Affected Parties for such losses, costs or expenses if it provides
notice to the Note Agent by no later than 11:00 a.m. on the Business Day
immediately preceding the Increase Date of its request to cancel the proposed
Principal Balance Increase or to reduce the amount of the proposed Principal
Balance Increase.

      (f) At any time the Issuer may, upon at least 30 Business Days' prior
written notice to the Note Agent, reduce the Maximum Note Principal Balance to
an amount not less than the Note Principal Balance. Reductions of the Maximum
Note Principal Balance pursuant to this subsection 2.03 (f) shall be allocated
to the aggregate Commitments of the Committed Purchasers pro rata based on their
relative Commitments or as the Note Agent, each related Conduit Purchaser and
each Committed Purchaser whose Commitment is to be reduced less than such
respective amount may otherwise agree in writing; provided, however, that in the
event the Note Agent makes a claim on behalf of any Purchaser for any amounts
payable pursuant to Sections 2.07 or 2.06, the Issuer need only give 2 Business
Days' prior written notice to the Note Agent to effect a reduction in the
Maximum Note Principal Balance.

      SECTION 2.04. Fees. From and after the Closing Date until the Collection
Date, the fees set forth in the Fee Letter (the "Fees") shall be paid in
accordance with Section 5.04 of the Indenture.

      SECTION 2.05. Extension of Term.

      (a) The Issuer may, at any time during the period which is not less than
45 days and not more than 75 days prior to the Commitment Termination Date then
in effect hereunder (as such date may have previously been extended pursuant to
this Section 2.05, the "Existing Termination Date"), request that the Existing
Termination Date be extended for an additional 364 days from the Existing
Termination Date. Any such request shall be in writing and delivered to the Note
Agent (which shall then deliver it to each Committed Purchaser), and shall be
subject to the following conditions: (i) at no time will this Agreement have a
remaining term

                                       9
<PAGE>

of more than 364 days and, if any such request would result in a remaining term
of more than 364 days, such request shall be deemed to have been made for such
number of days so that, after giving effect to such extension on the date
requested, such remaining term will not exceed 364 days, (ii) neither the Note
Agent nor any Committed Purchaser shall have any obligation to extend the
Commitment Termination Date at any time, and (iii) any such extension shall be
effective only upon the written agreement of the Note Agent, the applicable
Committed Purchaser, the Depositor, the Issuer and the Servicer. Each Committed
Purchaser, acting in its sole discretion, shall, by written notice to the Note
Agent (which shall notify the Issuer and the other Purchasers) given on or
before the date (herein, the "Consent Date") that is 30 days prior to Existing
Termination Date (except that, if such date is not a Business Day, the Consent
Date shall be the next succeeding Business Day), advise the Note Agent whether
or not such Committed Purchaser intends to extend the Existing Termination Date;
provided, that each Committed Purchaser that determines not to extend the
Existing Termination Date (a "Non-extending Committed Purchaser") shall notify
the Note Agent (which shall notify the Issuer and the other Purchasers) of such
fact within 30 days of the Issuer's request for the extension of the Existing
Termination Date; provided, further, however, that any Committed Purchaser that
does not advise the Note Agent of its decision whether or not to extend the
Existing Termination Date on or before the Consent Date shall be deemed to be a
Non-extending Committed Purchaser.

      (b) The Note Agent shall have the right on the Existing Termination Date
to replace any Committed Purchaser with, and/or otherwise add to this Agreement,
one or more other Committed Purchasers (which may include any existing Committed
Purchaser; each such Person prior to the Existing Termination Date, an
"Additional Committed Purchaser") (but only with the prior written consent of
the Issuer which consent shall not be unreasonably withheld or delayed) each of
which Additional Committed Purchasers shall, effective as of the Existing
Termination Date, undertake a commitment to fund Principal Balance Increases in
accordance with Section 2.03(b) hereof (and, if any such Additional Committed
Purchaser is already a Committed Purchaser, its Commitment shall be increased by
the applicable amount on such date). If the Note Agent is unable to replace a
Non-extending Committed Purchaser, then on the Existing Termination Date the
Maximum Principal Balance shall be reduced to an amount equal to the aggregate
of the Commitments of the Committed Purchasers which have extended their
respective Commitments in accordance with Section 2.05(a) above.

      SECTION 2.06. Calculation and Payment of Monthly Interest.

      (a) The amount of interest payable on each Payment Date in respect of the
Note shall equal the Monthly Interest for such Payment Date. The Note Agent
shall notify the Servicer, the Owner Trustee, the Indenture Trustee and the
Purchasers of the Monthly Interest for the related Payment Date and the Note
Interest Rate for the related Accrual Period on or before the Business Day
immediately following the end of such Accrual Period.

      (b) Out of the Monthly Interest received by the Note Agent for each
Accrual Period as contemplated in Section 8.01(b), the Note Agent shall remit to
each Owner an amount of interest equal to the product of (i) the Note Interest
Rate applicable to such Owner for such Accrual Period and (ii) such Owner's
allocable share of the Note Principal Balance during such

                                       10
<PAGE>

Accrual Period, plus the amount of any Breakage Costs and Fees applicable to
such Owner in respect of such Payment Date.

      (c) All computations of interest and other amounts under this Agreement
shall be made on the basis of a year of 360 days and the actual number of days
elapsed. Whenever any payment or deposit to be made hereunder shall be due on a
day other than a Business Day, such payment or deposit shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of such payment or deposit.

      SECTION 2.07. Increased Costs.

      (a) If due to the introduction of or any change (including, without
limitation, any change by way of imposition or increase of reserve requirements)
in or in the Interpretation of any law, regulation or accounting principle or
the imposition of any guideline or request from any central bank or other
Governmental Authority after the date hereof, there shall be an increase in the
cost to an Affected Party of making, funding or maintaining any investment in
the Note or any interest therein or of agreeing to purchase or invest in the
Note or any interest therein, as the case may be (other than by reason of any
Interpretation of or change in laws or regulations relating to Taxes or Excluded
Taxes), such Affected Party shall promptly submit to the Depositor, the Servicer
and the Note Agent a certificate setting forth in reasonable detail, the
calculation of such increased costs incurred by such Affected Party. In
determining such amount, such Affected Party may use any reasonable averaging
and attribution methods, consistent with the averaging and attribution methods
generally used by such Affected Party in determining amounts of this type. The
amount of increased costs set forth in such certificate (which certificate
shall, in the absence of manifest error, be prima facie evidence as to such
amount) shall be included in the Additional Amounts for (i) the first full
Accrual Period immediately succeeding the date on which the certificate
specifying the amount owing was delivered and (ii) to the extent remaining
outstanding, each Accrual Period thereafter until paid in full, and shall be
paid to the Note Agent pursuant to Section 5.04 of the Indenture. The Note Agent
shall, out of amounts received by it (as contemplated in Section 8.01(b)) in
respect of the Additional Amounts on any Payment Date (as contemplated in
Section 8.01(b)), pay to each Affected Party, any increased costs due pursuant
to this Section 2.07; provided, however, that if the amount distributable in
respect of the Additional Amounts on any Payment Date is less than the aggregate
amount payable to all Affected Parties pursuant to Sections 2.07, 2.08 and 2.09
for the corresponding Accrual Period, the resulting shortfall shall be allocated
among such Affected Parties on a pro rata basis (determined by the amount owed
to each). Failure on the part of any Affected Party to demand compensation for
any amount pursuant to this Section for any period shall not constitute a waiver
of such Affected Party's right to demand compensation for such period. For the
avoidance of doubt, if the issuance of FASB Interpretation No. 46, or any other
change in accounting standards or the issuance of any other pronouncement,
release or interpretation, causes or requires the consolidation of all or a
portion of the assets and liabilities of Company or Seller with the assets and
liabilities of the Agent, any Financial Institution or any other Funding Source,
such event shall constitute a circumstance on which such Funding Source may base
a claim for reimbursement under this Section.

                                       11
<PAGE>

      (b) Each Owner agrees that it shall use its reasonable efforts to take (or
cause any Affected Party claiming through such Owner to take) such steps as
would eliminate or reduce the amount of any increased costs described in this
Section 2.07 incurred by such Owner or Affected Party; provided that no such
steps shall be required to be taken if, in the reasonable judgment of such Owner
or Affected Party, such steps would be disadvantageous to such Owner or Affected
Party or inconsistent with its internal policy and legal and regulatory
restrictions.

      SECTION 2.08. Increased Capital.

      (a) If the introduction of or any change in or in the Interpretation of
any law, regulation or accounting principle or the imposition of any guideline
or request from any central bank or other Governmental Authority, in each case,
after the date hereof, affects or would affect the amount of capital required or
expected to be maintained by any Affected Party, and such Affected Party
determines that the amount of such capital is increased as a result of (i) the
existence of the Purchaser's agreement to make or maintain an investment in the
Note or any interest therein and other similar agreements or facilities or (ii)
the existence of any agreement by Affected Parties to make or maintain an
investment in the Note or any interest therein or to fund any such investment
and any other commitments of the same type, such Affected Party shall promptly
submit to the Depositor, the Servicer and the Note Agent a certificate setting
forth the additional amounts required to compensate such Affected Party in light
of such circumstances. In determining such amount, such Affected Party may use
any reasonable averaging and attribution methods, consistent with the averaging
and attribution methods generally used by such Affected Party in determining
amounts of this type. The amount set forth in such certificate (which
certificate shall, in the absence of manifest error, be prima facie evidence as
to such amount) shall be included in the Additional Amounts for (i) the first
full Accrual Period immediately succeeding the date on which the certificate
specifying the amount owing was delivered and (ii) to the extent remaining
outstanding, each Accrual Period thereafter until paid in full, and shall be
paid to the Note Agent pursuant to Section 5.04 of the Indenture. The Note Agent
shall, out of amounts received by it in respect of the Additional Amounts on any
Payment Date (as contemplated in Section 8.01(b)), pay to each Affected Party
any amount due pursuant to this Section, provided, however, that if the amount
distributable in respect of the Additional Amounts on any Payment Date is less
than the aggregate amount payable to all Affected Parties pursuant to Sections
2.07, 2.08 and 2.09 for the corresponding Accrual Period, the resulting
shortfall shall be allocated among such Affected Parties on a pro rata basis
(determined by the amount owed to each). Failure on the part of any Affected
Party to demand compensation for any amount pursuant to this Section 2.08 for
any period shall not constitute a waiver of such Affected Party's right to
demand compensation for such period. For the avoidance of doubt, if the issuance
of FASB Interpretation No. 46, or any other change in accounting standards or
the issuance of any other pronouncement, release or interpretation, causes or
requires the consolidation of all or a portion of the assets and liabilities of
Company or Seller with the assets and liabilities of the Agent, any Financial
Institution or any other Funding Source, such event shall constitute a
circumstance on which such Funding Source may base a claim for reimbursement
under this Section.

      (b) Each Owner agrees that it shall use its reasonable efforts to take (or
cause any Affected Party claiming through such Owner to take) such steps as
would eliminate or reduce the

                                       12
<PAGE>

amount of any increased costs described in this Section 2.08 incurred by such
Owner or Affected Party; provided that no such steps shall be required to be
taken if, in the reasonable judgment of such Owner or Affected Party, such steps
would be disadvantageous to such Owner or Affected Party or inconsistent with
its internal policy and legal and regulatory restrictions.

      SECTION 2.09. Taxes.

      (a) Subject to Section 2.09(d), any and all payments and deposits required
to be made hereunder or under the Sale and Servicing Agreement or the Indenture
by the Depositor or the Indenture Trustee to or for the benefit of the Note
Agent or any Owner shall be made, to the extent allowed by law, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto imposed by any Governmental Authority, excluding, in the case of each
Owner and the Note Agent, (i) taxes, levies, imposts, deductions, charges or
withholdings imposed on, or measured by reference to, the net income of such
Owner or the Note Agent, as applicable, franchise taxes imposed on such Owner or
the Note Agent, as applicable (including, branch profits taxes, minimum taxes
and taxes computed under alternative methods, at least one of which is based on
net income), and any other taxes (other than withholding taxes not imposed by
Section 1446 of the Code and Other Taxes), levies, imposts, deductions, charges
or withholdings based or imposed on income or the receipts or gross receipts of
such Owner or the Note Agent, as applicable, in each case, by any of (A) the
United States or any State thereof, (B) the state or foreign jurisdiction under
the laws of which such Owner or the Note Agent, as applicable, is organized,
with which it has a present or former connection (other than solely by reason of
this Agreement), or in which it is otherwise doing business or (C) any political
subdivision thereof; (ii) any taxes, levies, imposts, duties, charges or fees to
the extent of any credit or other benefit actually realized by such Note Agent
or Owner, as applicable, as a result thereof; and (iii) any taxes, levies,
imposts, duties, charges or fees imposed as a result of a change by the Note
Agent or Owner, as applicable, of the office in which all or any part of its
interest in the Note is acquired, accounted for or booked (all such excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
referred to herein as "Excluded Taxes" and all such nonexcluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being referred to
herein as "Taxes"). If the Depositor or the Indenture Trustee shall be required
by law to deduct any Taxes from or in respect of any sum required to be paid or
deposited hereunder to or for the benefit any Owner or the Note Agent, then,
subject to Section 2.09(d), (i) such sum shall be increased as may be necessary
so that, after making all required deductions (including deductions applicable
to additional sums payable under this Section 2.09), such Owner or the Note
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Depositor or the Indenture
Trustee (as appropriate) shall make such deductions and (iii) the Depositor or
the Indenture Trustee (as appropriate) shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.

      (b) Subject to Section 2.09(d), each Owner and the Note Agent shall be
reimbursed for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
otherwise payable under this Section 2.09) paid by such Owner or the Note Agent
(as the case may be) and any liability (including penalties,

                                       13
<PAGE>

interest and expenses) arising therefrom or with respect thereto. Each Owner and
the Note Agent agrees to promptly notify the Depositor and the Servicer of any
payment of such Taxes or Other Taxes made by it and, if practicable, any
request, demand or notice received in respect thereof prior to such payment. In
addition, in the event any Owner is required, in accordance with and pursuant to
the terms of any agreement or other document providing liquidity support, credit
enhancement or other similar support to such Owner in connection with the Note
or the funding or maintenance of an interest therein, to compensate a bank or
other financial institution in respect of taxes under circumstances similar to
those described in this Section, then, subject to Section 2.09(d), such Owner
shall be reimbursed for any such compensation so paid by it. A certificate as to
the amount of any indemnification pursuant to this Section 2.09 submitted to the
Depositor by such Owner or the Note Agent, as the case may be, setting forth in
reasonable detail the basis for and the calculation thereof, shall (absent
manifest error) be prima facie evidence as to such amount.

      (c) Within 30 days after the date of any payment of Taxes or Other Taxes,
the Depositor (on behalf of the Issuer) will furnish to the Note Agent the
original or a certified receipt evidencing payment thereof.

      (d) Any amounts payable to an Owner or the Note Agent pursuant to this
Section shall be included in the Additional Amounts for (i) in the case of
amounts payable pursuant to Section 2.09(a), the Accrual Period in respect of
which the payment subject to withholding is made, (ii) in the case of amounts
payable pursuant to Section 2.09(b), the first full Accrual Period immediately
succeeding the date on which the certificate specifying the amount owing was
delivered and (iii) in either case, to the extent remaining outstanding, each
Accrual Period thereafter until paid in full, and shall be paid to the Note
Agent pursuant to Section 5.04 of the Indenture. The Note Agent shall, out of
amounts received by it in respect of the Additional Amounts on any Payment Date
(as contemplated in Section 8.01(b)), pay to each Owner and itself, as
applicable, any reimbursement due pursuant to this Section, provided, however,
that if the amount distributable in respect of the Additional Amounts on any
Payment Date is less than the aggregate amount payable to all Affected Parties
pursuant to Sections 2.07, 2.08 and 2.09 for the corresponding Accrual Period,
the resulting shortfall shall be allocated among such Affected Parties on a pro
rata basis (determined by the amount owed to each).

      (e) The Note Agent and each Owner (i) that is organized under the laws of
a jurisdiction outside the United States hereby agrees to complete, execute and
deliver to the Indenture Trustee from time to time prior to the initial Payment
Date on which such Person will be entitled to receive distributions pursuant to
the Indenture and this Agreement, Internal Revenue Service form W-8ECI (or any
successor form), (ii) at the request of the Depositor (on behalf of the Issuer),
hereby agree to complete, execute and deliver to the Indenture Trustee from time
to time prior to the first Payment Date on which such Person will be entitled to
receive distributions pursuant to the Indenture and this Agreement, Internal
Revenue Service form W-9 (or any successor form), and (iii) hereby agree to
complete, execute and deliver to the Indenture Trustee from time to time prior
to the first Payment Date on which such Person will be entitled to receive
distributions pursuant to the Indenture and this Agreement, such other forms or
certificates as may be required under the laws of any applicable jurisdiction in
order to permit the Depositor or the Indenture Trustee to make payments to, and
deposit funds to or for the account

                                       14
<PAGE>

of, such Person hereunder and under the Sale and Servicing Agreement and the
Indenture without any deduction or withholding for or on account of any United
States tax. Each of the Note Agent and each Owner agrees to provide like
additional subsequent duly executed forms on or before the date that any such
form expires or becomes obsolete, or upon the occurrence of any event requiring
an amendment, resubmission or change in the most recent form previously
delivered by it and to provide such extensions or renewals as may be reasonably
requested by the Depositor or the Indenture Trustee. Each of the Note Agent and
each Owner certifies, represents and warrants that as of the date of this
Agreement, or in the case of an Owner which is an assignee as of the date of
such assignment, that (i) it is entitled (A) to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes (other than taxes subject to withholding pursuant to Code Section 1446)
and (B) to an exemption from United States backup withholding tax, and (ii) it
will pay any taxes attributable to its ownership of an interest in the Note.
Each of the Note Agent and each Owner further agrees that compliance with this
Section 2.09(e) (including by reason of Section 9.04(c) in the case of any sale
or assignment of any interest in Note) is a condition to the payment of any
amount otherwise due pursuant to Sections 2.09(a) and 2.09(b). Notwithstanding
anything to the contrary herein, each of the Paying Agent, Servicer and
Indenture Trustee shall be entitled to withhold any amount that it reasonably
determines in its sole discretion is required to be withheld pursuant to Section
1446 of the Code and such amount shall be deemed to have been paid to the Note
Agent or Owner, as applicable, for all purposes of the Agreement.

      (f) Any Owner entitled to the payment of any additional amount pursuant to
this Section 2.09 shall use its reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to take such steps as would
eliminate or reduce the amount of such payment; provided that no such steps
shall be required to be taken if, in the reasonable judgment of such Owner, such
steps would be materially disadvantageous to such Owner.

      (g) Without prejudice to the survival of any other agreement of the
Depositor hereunder, the agreements and obligations of the Depositor contained
in this Section 2.09 shall survive the termination of this Agreement.

                                   ARTICLE III
                                     CLOSING

      SECTION 3.01. Closing. The closing of the purchase and sale of the Note
(the "Closing") shall take place at the offices of Manatt, Phelps & Phillips,
LLP, 650 Town Center Drive, Suite 1250, Costa Mesa, California 92626, on August
8, 2003, or, if the conditions to closing set forth in Article IV shall not have
been satisfied or waived by such date, as soon as practicable after such
conditions shall have been satisfied or waived, or at such other time, date and
place as the parties shall agree upon (the date of the Closing being referred to
herein as the "Closing Date").

      SECTION 3.02. Transactions to be Effected at the Closing. At the Closing,
the Issuer shall deliver the Note with an aggregate maximum principal amount
equal to the Maximum Note Principal Balance to the Note Agent on behalf of the
Purchasers.

                                       15
<PAGE>

                                   ARTICLE IV
                         PURCHASER CONDITIONS PRECEDENT

      SECTION 4.01. Conditions Precedent to the Purchase of the Note. The
obligation of the Purchasers to purchase and pay for the Note on the Closing
Date is subject to the satisfaction at the time of the Closing of the following
conditions:

      (a) Performance by the Issuer, the Servicer, the Loan Originator and the
Depositor. All the terms, covenants, agreements and conditions of this Agreement
and the other Basic Documents to be complied with and performed by the Issuer,
the Servicer, the Loan Originator or the Depositor, as applicable, by the
Closing shall have been complied with and performed in all respects.

      (b) Representations and Warranties of the Issuer, the Servicer, the Loan
Originator and the Depositor. Each of the representations and warranties of the
Depositor, the Servicer, the Loan Originator and the Issuer made in this
Agreement and the other Basic Documents, shall be true and correct in all
respects as of the time of the Closing as though made as of such time (except to
the extent they expressly relate to an earlier time).

      (c) Officers' Certificate. The Note Agent shall have received from the
Servicer, in form and substance reasonably satisfactory to the Purchasers and
the Note Agent, an Officer's Certificate, dated the Closing Date, certifying as
to the satisfaction of the conditions set forth in Sections 4.01 (a) and 4.0
1(b) with respect to the Servicer, the Loan Originator, the Depositor and the
Issuer, respectively.

      (d) Certain Opinions of Counsel. The Note Agent shall have received from
(1) Manatt, Phelps & Phillips, LLP, acting as counsel for the Depositor, the
Servicer, the Loan Originator and/or certain other parties, as applicable, and
(2) in-house counsel for the Loan Originator, favorable opinions, dated the
Closing Date and reasonably satisfactory in form and substance to the
Purchasers, the Note Agent and their counsel.

      (e) Opinions of Counsel for the Indenture Trustee and the Owner Trustee.
The Note Agent shall have received from:

            (i) Kennedy Covington Lobdell & Hickman, L.L.P., counsel for the
      Indenture Trustee, a favorable opinion, dated the Closing Date and
      reasonably satisfactory in form and substance to the Purchasers, the Note
      Agent and their counsel.

            (ii) Richards, Layton & Finger, P.A., counsel for the Owner Trustee
      and the Issuer, a favorable opinion, dated the Closing Date and reasonably
      satisfactory in form and substance to the Purchasers, the Note Agent and
      their counsel.

      (f) Financing Statements. The Note Agent shall have received evidence
reasonably satisfactory to the Purchasers and the Note Agent that, on or before
the Closing Date, (i) UCC-1 financing statements have been filed in the offices
of the Secretary of State or comparable offices of the applicable states and in
the appropriate office or offices in such other locations as may be

                                       16
<PAGE>

specified in the relevant opinions of counsel delivered pursuant to Section
4.01(d) and in such other jurisdictions as its counsel deems appropriate,
reflecting the assignments contemplated by such opinions of counsel and the
respective interests of the applicable parties and (ii) all other recording,
registrations and filings (including, without limitation, recording of
Assignments of Mortgage) as may be necessary, or in the opinion of the Note
Agent and the Purchasers desirable, to perfect the security interest of the
Indenture Trustee in the Collateral (including, without limitation, the Loans)
have been completed.

      (g) Receipt of Certain Documents. The Note Agent shall have received a
fully executed copy of each of the Basic Documents and the other instruments,
documents and agreements required to be delivered thereunder. Each of the Basic
Documents shall have been duly authorized, executed and delivered by the
Depositor, the Servicer, the Loan Originator, the Issuer, the Owner Trustee and
the Indenture Trustee, as applicable, and shall be in full force and effect on
the Closing Date.

      (h) No Actions or Proceedings. No action, suit, proceeding or
investigation by or before any Governmental Authority shall have been instituted
to restrain or prohibit the consummation by the Issuer, the Depositor, the
Servicer, the Loan Originator, the Note Agent or the Purchasers of, or to
invalidate, the transactions contemplated by this Agreement, any of the other
Basic Documents or any of the Asset Purchase Agreements in any respect.

      (i) Approvals and Consents. All Governmental Actions of Governmental
Authorities required by the Note Agent, the Issuer, the Purchasers, the
Servicer, the Loan Originator or the Depositor with respect to the transactions
contemplated by this Agreement, the other Basic Documents and the Asset Purchase
Agreements shall have been obtained or made.

      (j) Payment of Fees. All Fees required to be paid to the Note Agent or the
Purchasers in connection with the Closing pursuant to the Fee Letter shall have
been paid.

      (k) Accounts. The Note Agent shall have received evidence reasonably
satisfactory to it that each Trust Account has been established in accordance
with the terms of the Sale and Servicing Agreement.

      (l) Proceedings in Contemplation of Sale of the Note. All actions and
proceedings undertaken by the Issuer, the Loan Originator, the Depositor and the
Servicer in connection with the issuance and sale of the Note as herein
contemplated shall be satisfactory in all respects to the Note Agent, the
Purchasers and their counsel.

      (m) Financial Covenants. The Loan Originator and the Servicer shall be in
compliance with the financial covenants set forth in Section 7.02 of the Sale
and Servicing Agreement.

      (n) Trust Accounts Control Agreements. The Note Agent shall have received
control agreements relating to the Trust Accounts in form and substance
satisfactory to the Note Agent.

      (o) Other Documents. The Servicer, the Loan Originator, the Depositor and
the Issuer shall have furnished to the Purchasers or the Note Agent, as the case
may be, such other

                                       17
<PAGE>

information, certificates and documents as the Purchasers, the Note Agent or
their counsel may reasonably request.

      SECTION 4.02. Conditions Precedent to Principal Balance Increases. The
obligation of the Purchasers to make any Principal Balance Increase is subject
to the satisfaction, as of the applicable Increase Date, of each of the
following conditions:

      (a) the request with respect to such Principal Balance Increase shall have
been delivered to the Note Agent and the Servicer by the time, and shall
otherwise conform to the requirements, specified in Section 2.06 of the Sale and
Servicing Agreement;

      (b) each of the conditions set forth in Section 2.06 of the Sale and
Servicing Agreement shall have been satisfied;

      (c) after giving effect to such Principal Balance Increase, the Note
Principal Balance shall not exceed the Maximum Note Principal Balance;

      (d) no Default, Event of Default or Servicer Event of Default has occurred
and is continuing or would result from such Principal Balance Increase;

      (e) the Revolving Period shall not have ended as of such Increase Date;

      (f) each of the representations and warranties of the Issuer, the
Servicer, the Loan Originator and the Depositor set forth in the Basic
Documents, shall be true and correct as though made on and as of such Increase
Date (except to the extent they expressly relate to an earlier date);

      (g) the Issuer, the Servicer, the Loan Originator and the Depositor shall
be in compliance with all of their respective covenants contained in the Basic
Documents and the Note;

      (h) the Note Agent shall have received evidence satisfactory to it of the
completion of all recordings, registrations, and filings as may be necessary or,
in the opinion of the Note Agent, desirable to perfect or evidence the
assignments required to be effected on such Increase Date in accordance with the
Sale and Servicing Agreement including, without limitation, the assignment of
the Loans and the proceeds thereof required to be assigned pursuant to the
related LPA Assignment, S&SA Assignment and the Indenture; and

      (i) after giving effect to such Principal Balance Increase, no
Overcollateralization Shortfall shall exist.

                                       18
<PAGE>

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

      SECTION 5.01. Representations and Warranties of the Depositor. The
Depositor hereby represents and warrants to the Owners and the Note Agent, as of
the date of this Agreement, as of the Closing Date, and as of (and as a
condition to any Principal Balance Increase occurring on) each Increase Date, in
each case with reference to the facts and circumstances then existing, as
follows:

      (a) Corporate Existence. The Depositor is a corporation, duly organized,
validly existing and in good standing under the laws of Delaware, with full
power and authority under such laws to own its properties and conduct its
business as such properties are presently owned and such business is presently
conducted and to execute, deliver and perform its obligations under this
Agreement and each Basic Document to which it is a party.

      (b) Corporate Authority. The Depositor has the corporate power and
authority to execute, deliver and perform this Agreement and each Basic Document
to which it is a party and all the transactions contemplated hereby and thereby
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and each Basic Document to which it
is a party; and, when executed and delivered, each of this Agreement and each
Basic Document to which it is a party will constitute its legal, valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium, receivership,
conservatorship and other laws relating to or affecting the enforcement of
creditors rights. The enforceability of its obligations under such agreements is
also subject to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and no
representation or warranty is made with respect to the enforceability of its
obligations under any indemnification provisions in such agreements to the
extent that indemnification is sought in connection with securities laws
violations and is contrary to public policy.

      (c) No Consents Required. No consent, license, approval or authorization
of, or registration with, any Governmental Authority is required to be obtained
by the Depositor in connection with the execution, delivery or performance by
the Depositor of each of this Agreement and the Basic Documents to which it is a
party, that has not been duly obtained and which is not and will not be in full
force and effect on the Closing Date or the relevant Increase Date, as
applicable.

      (d) No Violation. The execution, delivery and performance of each of this
Agreement and the Basic Documents to which it is a party do not violate any
provision of any existing law or regulation applicable to the Depositor, any
order or decree of any court or other judicial authority to which it is subject,
its charter or by-laws or any mortgage, indenture, contract or other agreement
to which it is a party or by which it or any of its properties is bound.

      (e) No Proceeding. There is no action, litigation or proceeding before any
court, tribunal or governmental body presently pending or, to the knowledge of
the Depositor threatened against the Depositor with respect to this Agreement,
the Basic Documents to which it

                                       19
<PAGE>

is a party, the transactions contemplated hereby or thereby or the issuance of
the Note, and there is no such litigation or proceeding against it or any of its
properties.

      (f) Trust Indenture Act. Neither the Indenture nor the Sale and Servicing
Agreement is required to be qualified under the Trust Indenture Act of 1939.

      (g) Investment Company Act. The Depositor is not required to be registered
under the Investment Company Act of 1940, as amended.

      (h) No Event of Default or Default. No Event of Default or Default has
occurred and is continuing, both before and immediately after giving effect to
the purchase or issuance of the Note or the relevant Principal Balance Increase,
as applicable.

      (i) The Note. The Note has been duly and validly authorized, and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to the Note Agent in accordance with this Agreement, will be duly and
validly issued and outstanding, and will be entitled to the benefits of, as
applicable, this Agreement and the applicable Basic Documents.

      (j) Taxes, Etc. Any taxes, fees and other charges of Governmental
Authorities imposed upon the Depositor in connection with the execution,
delivery and performance by the Depositor of this Agreement, the other Basic
Documents and the Note or otherwise in connection with the Issuer have been paid
or will be paid by the Depositor at or prior to the Closing Date or the relevant
Increase Date, as applicable, to the extent then due.

      (k) Disclosure. All written factual information heretofore furnished by
the Depositor or any of its representatives to the Note Agent or any Owner or
any of their representatives for purposes of or in connection with this
Agreement, including, without limitation, information relating to the Loans and
the Depositor's mortgage loan businesses, when considered with other information
provided to the Note Agent, other Owners or their representatives, as well as
information publicly available to them, was true and correct in all material
respects on the date such information was furnished by the Depositor or, if such
information specifically relates to an earlier date, on such earlier date.

      (l) Location of Offices. The Depositor's principal place of business and
chief executive office is located in the State of California, or such other
jurisdiction with respect to which the requirements specified in Section 6.04
have been satisfied.

      (m) Sale and Servicing Agreement Representations and Warranties. Its
representations and warranties in Section 3.01 of the Sale and Servicing
Agreement are true and correct in all material respects as of the dates they
were made (unless they specifically refer to an earlier date, in which case they
were true and correct on such earlier date).

      SECTION 5.02. Representations and Warranties of the Servicer. The Servicer
hereby represents and warrants to the Owners and the Note Agent, as of the date
of this Agreement, as of the Closing Date, and as of (and as a condition to any
Principal Balance Increase occurring

                                       20
<PAGE>

on) each Increase Date, in each case with reference to the facts and
circumstances then existing, as follows:

      (a) Corporate Existence. The Servicer is a corporation, duly organized,
validly existing and in good standing under the State of California, with full
power and authority under such laws to own its properties and conduct its
business as such properties are presently owned and such business is presently
conducted and to execute, deliver and perform its obligations under this
Agreement and each Basic Document to which it is a party.

      (b) Corporate Authority. The Servicer has the corporate power, authority
and right to make, execute, deliver and perform this Agreement and each Basic
Document to which it is a party and all the transactions contemplated hereby and
thereby and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and each Basic Document to which it
is a party; and, when executed and delivered, each of this Agreement and the
Basic Documents to which it is a party will constitute its legal, valid and
binding obligation, enforceable in accordance with its terms, subject to
applicable bankruptcy, reorganization, insolvency, moratorium, receivership,
conservatorship and other laws relating to or affecting the enforcement of
creditors rights. The enforceability of its obligations under such agreements is
also subject to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and no
representation or warranty is made with respect to the enforceability of its
obligations under any indemnification provisions in such agreements to the
extent that indemnification is sought in connection with securities laws
violations and is contrary to public policy.

      (c) No Consents Required. No consent, license, approval or authorization
of, or registration with, any Governmental Authority is required to be obtained
by the Servicer in connection with the execution, delivery or performance by the
Servicer of each of this Agreement and the Basic Documents to which it is a
party, that has not been duly obtained and which is not and will not be in full
force and effect on the Closing Date or the relevant Increase Date, as
applicable.

      (d) No Violation. The execution, delivery and performance of each of this
Agreement and the Basic Documents to which it is a party do not violate any
provision of any existing law or regulation applicable to the Servicer any order
or decree of any court or other judicial authority to which it is subject, its
charter or by-laws or any mortgage, indenture, contract or other agreement to
which it is a party or by which it or any of its properties is bound.

      (e) Financial Statements. Prior to the Closing Date, the Servicer has
delivered or caused to be delivered to the Note Agent, or, if such financial
statements are publicly available, the Agent has otherwise obtained, complete
and correct copies of, the audited consolidated balance sheet of Option One
Mortgage Corporation and its subsidiaries as of April 30, 2003, and the related
audited consolidated statements of income and cash flows of Option One Mortgage
Corporation and its subsidiaries for the fiscal year then ended, accompanied by
the opinion of Option One Mortgage Corporation's independent certified public
accountants. Such financial statements are complete and correct in all material
respects and fairly present the financial condition of Option One Mortgage
Corporation and its subsidiaries as of their respective dates

                                       21
<PAGE>

and the results of operations of Option One Mortgage Corporation and its
subsidiaries for the applicable periods then ended, subject to year-end
adjustments in the case of unaudited information, all in accordance with
generally accepted accounting principles or regulatory accounting principles, as
applicable, consistently applied.

      (f) No Proceeding. There is no action, litigation or proceeding before any
court, tribunal or governmental body presently pending or, to the knowledge of
the Servicer threatened against the Servicer with respect to this Agreement, the
Basic Documents to which it is a party, the transactions contemplated hereby or
thereby or the issuance of the Note, and there is no such litigation or
proceeding against it or any of its properties.

      (g) Trust Indenture Act. Neither the Indenture nor Sale and Servicing
Agreement is required to be qualified under the Trust Indenture Act of 1939.

      (h) Investment Company Act. The Servicer is not required to be registered
under the Investment Company Act of 1940, as amended.

      (i) No Event of Default or Default. No Event of Default or Default has
occurred and is continuing, both before and immediately after giving effect to
the purchase or issuance of the Note or the relevant Principal Balance Increase,
as applicable.

      (j) The Note. The Note has been duly and validly authorized, and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to the Note Agent in accordance with this Agreement, will be duly and
validly issued and outstanding, and will be entitled to the benefits of, as
applicable, this Agreement and the applicable Basic Documents.

      (k) Taxes, Etc. Any taxes, fees and other charges of Governmental
Authorities imposed upon the Servicer in connection with the execution, delivery
and performance by the Servicer of this Agreement any other Basic Document and
the Note or otherwise in connection with the Issuer have been paid or will be
paid by the Servicer at or prior to the Closing Date or the relevant Increase
Date, as applicable, to the extent then due.

      (l) Disclosure. All written factual information heretofore furnished by
the Servicer or any of its representatives to the Note Agent or any Owner or any
of their representatives for purposes of or in connection with this Agreement,
including, without limitation, information relating to the Loans and the
Servicer's mortgage loan businesses, when considered with other information
provided to the Note Agent, other Owners or their representatives, as well as
information publicly available to them, was true and correct in all material
respects on the date such information was furnished by the Servicer or, if such
information specifically relates to an earlier date, on such earlier date.

      (m) Location of Offices. The Servicer's principal place of business and
chief executive office is located in the State of California, or such other
jurisdiction with respect to which the requirements specified in Section 6.04
have been satisfied.

                                       22
<PAGE>

      (n) Sale and Servicing Agreement Representations and Warranties. Its
representations and warranties in Sections 3.03 of the Sale and Servicing
Agreement are true and correct in all material respects as of the dates they
were made (unless they specifically refer to an earlier date, in which case they
were true and correct on such earlier date).

      SECTION 5.03. Representations and Warranties of the Issuer. The Issuer
hereby represents and warrants to the Owners and the Note Agent as of the date
of this Agreement, as of the Closing Date, and as of (and as a condition to any
Principal Balance Increase occurring on) each Increase Date, in each case with
reference to the facts and circumstances then existing, as follows:

      (a) Due Organization. The Issuer is Delaware statutory trust organized,
validly existing and in good standing under the laws of the State of Delaware,
with full power and authority under such laws to own its properties and conduct
its business as such properties are presently owned and such business is
presently conducted, to execute, deliver and perform its obligations under this
Agreement and each Basic Document to which it is a party and to issue the Note.

      (b) Authorization of the Basic Documents. The Issuer has the power,
authority and right to make, execute, deliver and perform this Agreement and
each Basic Document to which it is a party and all the transactions contemplated
hereby and thereby and to issue the Note, and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement and each
Basic Document to which it is a party and to issue the Note; and, when executed
and delivered, each of this Agreement and the Basic Documents to which it is a
party will constitute its legal, valid and binding obligation, enforceable in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium, receivership, conservatorship and other laws relating to
or affecting the enforcement of rights of creditors from time to time in effect.
The enforceability of its obligations under such agreements is also subject to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and no representation or
warranty is made with respect to the enforceability of its obligations under any
indemnification provisions in such agreements to the extent that indemnification
is sought in connection with securities laws violations and is contrary to
public policy.

      (c) No Consents Required. No consent, license, approval or authorization
of, or registration with, any Governmental Authority is required to be obtained
by the Issuer in connection with the execution, delivery or performance by the
Issuer of each of this Agreement and the Basic Documents to which it is a party,
that has not been duly obtained and which is not and will not be in full force
and effect on the Closing Date or the relevant Increase Date, as applicable.

      (d) No Violation. The execution, delivery and performance of each of this
Agreement and the Basic Documents to which it is a party do not violate any
provision of any existing law or regulation applicable to the Issuer any order
or decree of any court or other judicial authority to which it is subject, the
Trust Agreement, any organizational documents or bylaws or any mortgage,
indenture, contract or other agreement to which it is a party or by which

                                       23
<PAGE>

it or any significant portion of its properties is bound (other than violations
of such laws, regulations, orders, decrees, mortgages, indentures, contracts and
other agreements which, individually or in the aggregate, would not have a
material adverse effect on the Issuer's ability to perform its obligations
under, or the validity or enforceability of, this Agreement or the Basic
Documents).

      (e) No. Proceeding. There is no action, litigation or proceeding before
any court, tribunal or governmental body presently pending or, to the knowledge
of the Issuer, threatened against the Issuer with respect to this Agreement, the
Basic Documents, the transactions contemplated hereby or thereby or the issuance
of the Note, and there is no such litigation or proceeding against it or any
significant portion of its properties which would have a material adverse effect
on the transactions contemplated by, or its ability to perform its obligations
under, this Agreement or any Basic Document to which it is a party.

      (f) Investment Company Act. The Issuer is not required to be registered
under the Investment Company Act of 1940, as amended.

      (g) The Note. The Note has been duly and validly authorized, and, when
executed and authenticated in accordance with the terms of the Indenture and
delivered to the Note Agent in accordance with this Agreement, will be duly and
validly issued and outstanding, and will be entitled to the benefits of, as
applicable, this Agreement and the applicable Basic Documents.

      (h) Taxes, Etc. Any taxes, fees and other charges of Governmental
Authorities imposed upon the Issuer in connection with the execution, delivery
and performance by the Issuer of this Agreement any other Basic Document and the
Note has been paid or will be paid by the Issuer at or prior to the Closing Date
or the relevant Increase Date, as applicable, to the extent then due.

      (i) Disclosure. All written factual information heretofore furnished by
the Issuer to the Note Agent or any Owner or any of their representatives for
purposes of or in connection with this Agreement or the Note, when considered
with other information provided to the Note Agent, other Owners or their
representatives, as well as information publicly available to them, was true and
correct in all material respects on the date such information was furnished by
the Issuer or, if such information specifically relates to an earlier date, on
such earlier date.

      SECTION 5.04. Representations and Warranties of the Note Agent and the
Purchasers. The Note Agent and each of the Purchasers hereby represents and
warrants to the Issuer, the Depositor and the Servicer as of the date of this
Agreement, as follows:

      (a) Each of the Note Agent and such Purchaser has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the purchase of an interest in the Note. Each of the Note
Agent and such Purchaser (i) is (A) a "qualified institutional buyer" as defined
under Rule 144A promulgated under the Securities Act of 1933, as amended (the
"1933 Act"), acting for its own account or the accounts of other "qualified
institutional buyers" as defined under Rule 144A, or (B) an "accredited
investor" within the meaning of Regulation D promulgated under the 1933 Act, and
(ii) is aware that the

                                       24
<PAGE>

Issuer intends to rely on the exemption from registration requirements under the
1933 Act provided by Rule 144A or Regulation D, as applicable.

      (b) Each of the Note Agent and such Purchaser understands that neither the
Note nor interests in the Note have been registered or qualified under the 1933
Act, nor under the securities laws of any state, and therefore neither the Note
nor interests in the Note can be resold unless they are registered or qualified
thereunder or unless an exemption from registration or qualification is
available.

      (c) It is the intention of the Note Agent and such Purchaser to acquire
interests in the Note (a) for investment for its own account, or (b) for resale
to "qualified institutional buyers" in transactions under Rule 144A, and not in
any event with the view to, or for resale in connection with, any distribution
thereof. Each of the Note Agent and such Purchaser understands that the Note and
interests therein have not been registered under the 1933 Act by reason of a
specific exemption from the registration provisions of the 1933 Act which
depends upon, among other things, the bona fide nature of the Purchaser's
investment intent (or intent to resell only in Rule 144A transactions) as
expressed herein.

The Note Agent shall, and does hereby agree to, indemnify the Issuer, the Owner
Trustee, the Depositor, the Trustee and the Servicer against any liability that
may result from a breach of the foregoing representations.

                                   ARTICLE VI
            COVENANTS OF THE ISSUER, THE DEPOSITOR AND THE SERVICER

      SECTION 6.01. Covenants of the Issuer, the Depositor and the Servicer.
Each of the Issuer, the Depositor and the Servicer will (with respect to itself
only and not with respect to the other), from the date hereof until the
Collection Date, unless, in each case, the Note Agent shall otherwise consent in
writing:

      (a) Preservation of Corporate Existence. Except as permitted by the Sale
and Servicing Agreement, preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its formation, and qualify and
remain qualified in good standing as a foreign corporation in each jurisdiction
where the failure to preserve and maintain such existence, rights, franchises,
privileges and qualification is reasonably likely to materially adversely affect
the interests of the Note Agent or any Owner under this Agreement or the Note.

      (b) Security Interest; Further Assurances. The Issuer shall take all
action necessary to maintain vested in the Indenture Trustee under the
Indenture, a first priority perfected security interest in the Collateral. The
Depositor and Servicer each agrees to do and perform, from time to time, any and
all acts and to execute any and all further instruments required or reasonably
requested by the Note Agent more fully to effect the purposes of this Agreement.

      (c) Access to Information. From the Closing Date until the Collection
Date, at any time and from time to time during regular business hours, on
reasonable notice to the Depositor or Servicer, as applicable, permit the Note
Agent, or its agents or representatives, at the

                                       25
<PAGE>

Servicer's expense (once during any calendar year prior to the occurrence of an
Event of Default), (i) to examine all books, records and documents (including
computer tapes and disks) in the possession or under the control of the
Depositor or Servicer, as the case may be, relating to the Loans or the Basic
Documents, and (ii) to visit the offices and properties of the Depositor or the
Servicer, as applicable, for the purpose of examining such materials described
in clause (i) above.

      SECTION 6.02. Reporting Requirements of the Depositor and the Servicer.
The Depositor and the Servicer will (with respect to itself only and not with
respect to the other), from the date hereof until the Collection Date, unless,
in each case, the Note Agent shall otherwise consent in writing, furnish to the
Note Agent:

      (a) a copy of each certificate, report, statement, notice or other
communication furnished by or on behalf of the Depositor or the Servicer to the
Indenture Trustee or any Rating Agency pursuant to the Sale and Servicing
Agreement or the Indenture, concurrently therewith, and promptly after receipt
thereof, a copy of each notice, demand or other communication received by or on
behalf of the Depositor or the Servicer under the Sale and Servicing Agreement
or the Indenture;

      (b) as soon as possible and in any event within five Business Days after
the occurrence thereof, notice of each "Event of Default" or "Default" under and
as defined in the Indenture or "Servicer Event of Default" under and as defined
in the Sale and Servicing Agreement or event that with the giving of notice or
lapse of time or both would constitute such a Servicer Event of Default;

      (c) copies of all amendments to any Basic Document;

      (d) prompt notice of any failure on the part of any party thereto to
observe or perform any material term of any Basic Document;

      (e) (i) within 120 days following the end of each fiscal year of Option
One Mortgage Corporation, beginning with the fiscal year ending April 30, 2004,
the audited consolidated balance sheet of Option One Mortgage Corporation and
its subsidiaries as of the end of such fiscal year, and the related audited
consolidated statements of income and cash flows of Option One Mortgage
Corporation and its subsidiaries for such fiscal year, accompanied by the
opinion of nationally-recognized independent certified public accountants and
(ii) within 60 days following the end of each fiscal quarter of Option One
Mortgage Corporation, beginning with the fiscal quarter ending July 31, 2003,
the unaudited consolidated balance sheet of Option One Mortgage Corporation and
its subsidiaries as of the end of such fiscal quarter, and the related unaudited
consolidated statements of income and cash flows of Option One Mortgage
Corporation and its subsidiaries for such fiscal quarter; provided, however,
that the financial statements required to be delivered in accordance with this
Section 6.02(e) will only be required to be delivered hereunder if such items
are not publicly available at the time indicated at no expense to the Note
Agent;

                                       26
<PAGE>

      (f) such other information, documents, records or reports respecting the
Depositor, the Servicer, the Loan Originator, or the Issuer or the condition or
operations, financial or otherwise, of the Depositor, the Servicer, the Loan
Originator or the Issuer as the Note Agent may from time to time reasonably
request; and

      (g) such other information, documents, records or reports respecting the
Loans or the servicing thereof as the Note Agent may from time to time
reasonably request.

      SECTION 6.03. Optional Repurchase. The Issuer shall not exercise its right
to redeem the Note pursuant to Section 10.01 of the Indenture unless the Owners
and the Note Agent have been paid, or will be paid upon such redemption, the
Note Principal Balance, all interest thereon and all other amounts owing
hereunder in full.

      SECTION 6.04. Change in Name; Jurisdiction of Organization. The Depositor
shall not (1) make any change to its name indicated on the public record of its
jurisdiction of organization which shows it to have been organized, or (2)
change its jurisdiction of organization, in either case, unless it shall have
given the Note Agent at least 30 days' prior written notice of such relocation
and shall have filed such UCC financing statements and other items and delivered
such opinions as the Note Agent deems reasonably necessary to maintain the
Indenture Trustee's perfected security interest in the Receivables.

                                   ARTICLE VII
                                 INDEMNIFICATION

      SECTION 7.01. Indemnification by the Depositor and the Servicer.

      (a) The Depositor shall indemnify and hold harmless each Owner, the Note
Agent, their respective Affiliates and their respective officers, directors,
employees, stockholders, agents and representatives, against any and all losses,
claims, damages, liabilities or reasonable expenses (including legal and
accounting fees) (collectively, "Losses"), as incurred (payable promptly upon
written request), for or on account of or arising from or in connection with or
otherwise with respect to any breach of any representation or warranty of the
Depositor or the Issuer set forth in this Agreement any other Basic Document or
in any certificate delivered pursuant hereto or thereto; provided, however, that
the Depositor shall not be so required to indemnify any such Person or otherwise
be liable to any such Person hereunder for (i) any Losses incurred for or on
account of or arising from or in connection with or otherwise with respect to
any breach of any representation or warranty set forth in the Sale and Servicing
Agreement a remedy for the breach of which is provided in Section 3.06 of the
Sale and Servicing Agreement or (ii) any Losses to the extent they result from
the gross negligence or willful misconduct of any Affected Party.

      (b) The Servicer shall indemnify and hold harmless each Owner, the Note
Agent, their respective Affiliates and their respective officers, directors,
employees, stockholders, agents and representatives, against any and all Losses,
as incurred (payable promptly upon written request), for or on account of or
arising from or in connection with or otherwise with respect to any breach of
any representation or warranty of the Servicer set forth in this Agreement or
the

                                       27

<PAGE>

Sale and Servicing Agreement or in any certificate delivered pursuant hereto or
thereto; provided, however, that the Servicer shall not be so required to
indemnify any such Person or otherwise be liable to any such Person hereunder
for (i) any Losses incurred for or on account of or arising from or in
connection with or otherwise with respect to any breach of any representation or
warranty set forth in the Sale and Servicing Agreement a remedy for the breach
of which is provided in Section 3.06 of the Sale and Servicing Agreement or (ii)
any Losses to the extent they result from the gross negligence or willful
misconduct of any Affected Party.

      (c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving any
Affected Party in respect of which indemnity may be sought pursuant to this
Section 7.01, such Affected Party shall promptly notify the Issuer and the
Depositor in writing and, upon request of the Affected Party, the Issuer and the
Depositor shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Affected Party to represent such Affected Party
and any others the indemnifying party may designate and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding; provided that
failure to give such notice or deliver such documents shall not affect the
rights to indemnity hereunder unless such failure materially prejudices the
rights of the indemnifying party. The Affected Party will have the right to
employ its own counsel in any such action in addition to the counsel of the
Issuer and/or the Depositor, but the reasonable fees and expenses of such
counsel will be at the expense of such Affected Party, unless (i) the employment
of counsel by the Affected Party at its expense has been reasonably authorized
in writing by the Depositor or the Issuer, (ii) the Depositor or the Issuer has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action or
(iii) the named parties to any such action or proceeding (including any
impleaded parties) include the Depositor or the Issuer and one or more Affected
Parties, and the Affected Parties shall have been advised by counsel that there
may be one or more legal defenses available to them which are different from or
additional to those available to the Depositor or the Issuer. Reasonable
expenses of counsel to any Affected Party shall be reimbursed by the Issuer and
the Depositor as they are incurred. The Issuer and the Depositor shall not be
liable for any settlement of any proceeding affected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the Affected Party
from and against any loss or liability by reason of such settlement or judgment.
Neither the Issuer nor the Depositor will, without the prior written consent of
the Affected Party, effect any settlement of any pending or threatened
proceeding in respect of which any Affected Party is or could have been a party
and indemnity could have been sought hereunder by such Affected Party, unless
such settlement includes an unconditional release of such Affected Party from
all liability on claims that are the subject matter of such proceeding.

      SECTION 7.02. Costs and Expenses. Each of the Depositor and the Servicer
agree to pay on demand (a) to the Note Agent and the Purchasers all reasonable
costs and expenses in connection with the preparation, execution, delivery and
administration (including any amendments, waivers or consents, other than
amendments, waivers and consents made solely at the request of any Purchaser or
the Note Agent, as opposed to the Depositor or the Servicer) of this Agreement
and the other documents to be delivered hereunder or in connection herewith,
including, without limitation, (i) the reasonable fees and out-of-pocket
expenses of counsel for

                                       28
<PAGE>

each of the Note Agent and the Purchasers, with respect thereto and with respect
to advising each of the Note Agent and the Purchasers, as to its respective
rights and remedies under this Agreement and the other documents delivered
hereunder or in connection herewith, (ii) rating agency fees, costs and expenses
incurred in connection with the purchase by the Purchasers of the Note, (iii)
the reasonable fees, costs and expenses of any third party auditors and (iv)
other reasonable fees, costs and expenses incurred by any Purchaser or the Note
Agent in connection with the purchase by such Purchaser of the Note (including
trustee's fees, costs and expenses), and (b) to the Note Agent and any other
Affected Party, all reasonable costs and expenses, if any (including reasonable
counsel fees and expenses), in connection with the enforcement of this
Agreement, and the other documents delivered hereunder or in connection
herewith.

                                  ARTICLE VIII
                                 THE NOTE AGENT

      SECTION 8.01. Authorization and Action.

      (a) Each of the Owners hereby designates and appoints Bank One as Note
Agent hereunder, and authorizes the Note Agent to take such action as agent on
its behalf and to exercise such powers as are delegated to the Note Agent under
this Agreement and any related agreement, instrument and document as are
delegated to the Note Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto. The Note Agent reserves the right,
in its sole discretion to exercise any rights and remedies under this Agreement
or any related agreement, instrument or document executed and delivered pursuant
hereto, or pursuant to applicable law, and also to agree to any amendment,
modification or waiver of this Agreement or any related agreement, instrument
and document, in each instance, on behalf of the Owners. The Note Agent shall
not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Owner, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of
the Note Agent shall be read into this Agreement or otherwise exist for the Note
Agent. In performing its functions and duties hereunder, the Note Agent does not
assume nor shall be deemed to have assumed any obligation or relationship of
trust or agency with or for the Depositor or the Issuer or any of its successors
or assigns. Notwithstanding anything herein or elsewhere to the contrary, the
Note Agent shall not be required to take any action which exposes the Note Agent
to personal liability or which is contrary to this Agreement or applicable law.

      (b) Each Purchaser and each subsequent Owner from time to time hereby
acknowledges and agrees that all payments in respect of the Note and in respect
of fees and other amounts owing to the Owners under this Agreement shall, except
as otherwise expressly provided herein, be remitted by the applicable payor to
the Note Agent on behalf of the Owners, and the Note Agent shall distribute all
such amounts, promptly following receipt thereof, to the applicable parties in
interest according to their respective interests therein, determined by
reference to the terms of the Sale and Servicing Agreement, the Indenture, this
Agreement and the Note Agent's books and records relating to the Note (it being
agreed that the entries made in such books and records of the Note Agent shall
be conclusive and binding for all purposes absent manifest error).

                                       29
<PAGE>

      SECTION 8.02. Note Agent's Reliance, Etc. Neither the Note Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them as Note Agent under or in connection
with this Agreement or any related agreement, instrument or document except for
its or their own gross negligence or willful misconduct. Without limiting the
foregoing, the Note Agent: (i) may consult with legal counsel (including counsel
for the Depositor, the Servicer, the Issuer, the Owner Trustee or the Indenture
Trustee), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (ii)
makes no warranty or representation to any Owner and shall not be responsible to
any Owner for any statements, warranties or representations made in or in
connection with this Agreement or in connection with any related agreement,
instrument or document; (iii) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of this Agreement or any related agreement, instrument or document on the part
of the Depositor, the Servicer, the Issuer, the Owner Trustee or the Indenture
Trustee or to inspect the property (including the books and records) of the
Depositor, the Servicer, the Issuer, the Owner Trustee or the Indenture Trustee;
(iv) shall not be responsible to any Owner for the due execution, legality,
validity, enforceability, genuineness or sufficiency of value of this Agreement
or any related agreement, instrument or document; (v) shall not be deemed to be
acting as any Owner's trustee or otherwise in a fiduciary capacity hereunder or
in connection with any related agreement, instrument or document; and (vi) shall
incur no liability under or in respect of this Agreement or any related
agreement, instrument or document by acting upon any notice (including notice by
telephone), consent, certificate or other instrument or writing (which may be by
telex or facsimile) believed by it to be genuine and signed or sent by the
proper party or parties.

      SECTION 8.03. Note Agent and Affiliates. To the extent that the Note Agent
or any of its Affiliates shall become an Owner, the Note Agent or such
Affiliate, in such capacity, shall have the same rights and powers under this
Agreement and each related agreement, instrument and document as would any Owner
and may exercise the same as though it were not the Note Agent or such
Affiliate, as the case may be. The Note Agent and its Affiliates may generally
engage in any kind of business with the Depositor, the Servicer, the Issuer, the
Owner Trustee or the Indenture Trustee, any Obligor or any of their respective
Affiliates and any Person who may do business with or own securities of any of
the foregoing, all as if it were not the Note Agent or such Affiliate, as the
case may be, and without any duty to account therefor to the Owners.

      SECTION 8.04. Purchase Decision. Each Owner acknowledges that it has,
independently and without reliance upon the Note Agent, any other Owner or any
of their respective Affiliates, and based on such documents and information as
it has deemed appropriate, made its own evaluation and decision to enter into
this Agreement and to invest in the Note (or such interest therein as such Owner
may hold). Each Owner also acknowledges that it will, independently and without
reliance upon the Note Agent, any other Owner or any of their respective
Affiliates, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement or any related agreement, instrument or other
document.

                                       30
<PAGE>

      SECTION 8.05. Indemnification. Each Owner (other than the Purchasers)
agrees to indemnify the Note Agent (to the extent not reimbursed by the
Depositor, the Servicer or the Issuer), ratably according to its share of the
Note Principal Balance from time to time, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Note Agent in any way relating
to or arising out of this Agreement or any related agreement, instrument or
document, or any action taken or omitted by the Note Agent under this Agreement,
or any related agreement, instrument or document; provided, however, that no
Owner shall not liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Note Agent's gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, each Owner (including the
Purchasers, but only to the extent the Purchasers are reimbursed by the
Depositor, the Servicer or the Issuer for such a expenses) agrees to reimburse
the Note Agent, ratably according to its share of the Note Principal Balance
from time to time, promptly upon demand, for any out-of-pocket expenses
(including reasonable counsel fees) incurred by the Note Agent in connection
with the administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement or and related agreement,
instrument or document.

      SECTION 8.06. Successor Note Agent. The Note Agent may resign at any time
by giving 30 days' notice thereof to the Owners, the Depositor, the Issuer, the
Servicer and the Indenture Trustee and such resignation shall become effective
upon the appointment and acceptance of a successor Note Agent as described
below. Upon any such resignation, the Owners shall have the right to appoint a
successor Note Agent approved by the Depositor (which approval will not be
unreasonably withheld or delayed). If no successor Note Agent shall have been so
appointed by the Owners and accepted such appointment within 30 days after the
retiring Note Agent's giving of notice of resignation, then the retiring Note
Agent may, on behalf of the Owners, appoint a successor Note Agent approved by
the Depositor (which approval will not be unreasonably withheld or delayed),
which successor Note Agent shall be (i) either (a) a commercial bank having a
combined capital and surplus of at least $250,000,000 or (b) an Affiliate of
such bank and (ii) experienced in the types of transactions contemplated by this
Agreement. Upon the acceptance of any appointment as Note Agent hereunder by a
successor Note Agent, such successor Note Agent shall thereupon succeed to and
become vested with all of the rights, powers, privileges and duties of the
retiring Note Agent, and the retiring Note Agent shall be discharged from its
duties and obligations hereunder. After any retiring Note Agent's resignation or
removal hereunder as Note Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Note Agent hereunder.

                                   ARTICLE IX
                                 MISCELLANEOUS

      SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, and no consent to any departure by the Depositor or the Servicer
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Depositor, the Servicer, the Issuer, the Required Owners and
the Note Agent. Notwithstanding the foregoing,

                                       31
<PAGE>

without the prior written consent of each Purchaser, no such amendment shall (i)
decrease the amount of, or extend the time for payment of, the Note Principal
Balance or the Monthly Interest, (ii) change the definition of "Required
Owners," or (iii) amend this Section 9.01. Any such amendment, waiver or consent
shall be effective in any event only in the specific instance and for the
specific purpose for which given.

      SECTION 9.02. Notices, Etc. All notices and other communications provided
for hereunder shall, unless otherwise stated herein, be in writing (including
telecopies) and mailed, telecopied or delivered, as to each party hereto, at its
address set forth on Schedule II attached hereto or at such other address as
shall be designated by such party in a written notice to the other party hereto.
All such notices and communications shall, when mailed or telecopied, be
effective when deposited in the mails or telecopied (with telephonic
acknowledgement of receipt). Notwithstanding the foregoing, requests for
Principal Balance Increases may be transmitted by electronic mail to the address
provided by the Note Agent from time to time and will be deemed to be effective
upon being sent.

      SECTION 9.03. No Waiver; Remedies. No failure on the part of any party
hereto to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.

      SECTION 9.04. Binding Effect; Assignability.

      (a) This Agreement shall be binding upon each of and inure to the benefit
of the Depositor, the Servicer, the Note Agent, the Owners and their respective
successors and permitted assigns.

      (b) Neither the Depositor nor the Servicer may assign any of its rights
and obligations hereunder or any interest herein without the prior written
consent of the Required Owners and the Note Agent.

      (c) An Owner may, at any time, subject to the terms and conditions
hereinafter set forth and the terms and conditions of the Indenture, (i) without
the consent of the Depositor, assign, or grant undivided participation interests
in, any or all of its rights and obligations hereunder or under the Note to any
Purchaser, any Liquidity Provider, Bank One or any other commercial paper
conduit managed by Bank One, and (ii) with the prior written consent of the
Issuer, such consent not to be unreasonably withheld, assign, or grant undivided
participation interests in, any or all of its rights and obligations hereunder
or under the Note to any other Person; provided, however, that (A) without the
prior written consent of the Issuer, such consent not to be unreasonably
withheld, no participant (other than a Purchaser, any Liquidity Provider, or
Bank One) or Affected Party claiming through a participant (other than a
Purchaser, any Liquidity Provider, or Bank One) shall be entitled to receive any
payment pursuant to Sections 2.07, 2.08, 2.09 or 8.02 in excess of the amount
that the Owner granting such participation interest would have been entitled to
receive had such participation interest not been sold to such participant; (B)
in the case of any transfer by sale, assignment or participation, the

                                       32
<PAGE>

transferee as a condition of transfer shall be subject to compliance with
Sections 2.09(e) and (f) hereof; (C) the aggregate number of Owners at any time
shall not exceed ten (excluding, if applicable, any Federal Reserve Bank to
which a pledge is made); and (D) no assignment or participation hereunder shall
be effective unless the Note Agent shall have first consented thereto in
writing, such consent being required for the purpose of assuring compliance with
the requirements of this Section. Any assignment or grant of a participation
interest by an Owner pursuant to this Section shall be effected pursuant to
documentation satisfactory in form and substance to the Note Agent. Upon the
consummation of any such assignment or sale hereunder, the assignee shall be
subject to all of the obligations and entitled to all of the rights and benefits
of the assignor hereunder. The Note Agent shall promptly notify the Depositor of
any sale, assignment or participation under this Section. Each Purchaser hereby
agrees that promptly following the sale of any assignment or participation by
any Liquidity Provider of all or any portion of its rights and obligations under
the applicable Asset Purchase Agreement, such Purchaser, to the extent that the
Depositor's prior consent to such assignment or participation is not required
hereunder, shall notify the Depositor thereof, specifying the transferor, the
transferee and the extent of the applicable assignment or participation.

      (d) It is expressly agreed that, in connection with any assignment, sale
or other transfer or any proposed assignment, sale or other transfer of the Note
or any interest therein, each Owner making or proposing to make such assignment,
sale or other transfer may provide such information regarding the Loans, the
Issuer, the Sale and Servicing Agreement, the Indenture and the other Basic
Documents as such Owner may deem appropriate to any such assignee, purchaser or
other transferee or proposed assignee, purchaser or other transferee, as
applicable (any such Person being a "Transferee"), of the Note or such interest
therein, provided that prior to any such disclosure of such information, such
Transferee shall have agreed to maintain the confidentiality of such information
designated by the Depositor as confidential on substantially the basis set forth
in Section 9.10.

      (e) The Note Agent may not assign at any time its rights and obligations
hereunder and interests herein as Note Agent without the consent of the Owners,
the Depositor, the Servicer or the Issuer (which consent shall not be
unreasonably withheld or delayed).

      (f) Each Owner may assign and pledge all or a portion of such Owner's
interest in the Note to any Federal Reserve Bank as collateral to secure any
obligation of such Owner to such Federal Reserve Bank. Notwithstanding anything
to the contrary herein or in the Indenture, such assignment may be made at any
time without notice or other obligation with respect to the assignment.

      (g) This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until the Collection Date; provided, however, that the rights
and remedies with respect to any breach of any representation or warranty made
by the Depositor and the Servicer pursuant to Article VI and the provisions of
Sections 8.01, 8.02, and 10.07 shall be continuing and shall survive any
termination of this Agreement.

                                       33
<PAGE>

      SECTION 9.05. Note as Evidence of Indebtedness. It is the intent of each
of the parities hereto that, for all federal, state, local and foreign taxes,
the Note will be evidence of indebtedness of the Issuer. Each of the parties
hereto and the other Owners agrees to treat the Note for purposes of all
federal, state, local and foreign taxes as indebtedness of the Issuer secured by
the Collateral.

      SECTION 9.06. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW) AND THE RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

      SECTION 9.07. No Proceedings.

      (a) The Issuer, the Servicer and the Depositor, each Owner and the Note
Agent each hereby agrees that it will not, prior to the date that is one year
and one day after the latest maturing commercial paper note, medium term note or
other debt instrument issued by any Conduit Purchaser has been issued,
acquiesce, petition or otherwise invoke or cause such Conduit Purchaser to
invoke the process of any Governmental Authority for the purpose of commencing
or sustaining a case against such Conduit Purchaser under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of such
Conduit Purchaser or any substantial part of its property or ordering the
winding-up or liquidation of the affairs of such Conduit Purchaser. The Issuer,
the Servicer, the Depositor, each Owner and the Note Agent each hereby further
agrees that prior to the date that is one year and one day after the latest
maturing commercial paper note, medium term note or other debt instrument issued
by any Conduit Purchaser has been issued, amounts payable by such Conduit
Purchaser under or in connection with this Agreement as reimbursement for
out-of-pocket expenses or indemnification shall be payable only to the extent
that payment thereof will not render such Conduit Purchaser insolvent and is
made from funds of such Conduit Purchaser that are freely distributable by such
Conduit Purchaser at such Conduit Purchaser's discretion.

      (b) Each Owner and the Note Agent hereby agrees that it will not, prior to
the date that is one year and one day after the termination of the Trust
Agreement, acquiesce, petition or otherwise invoke or cause the Issuer to invoke
the process of any Governmental Authority for the purpose of commencing or
sustaining a case against the Issuer or the Depositor 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
Issuer or any substantial part of its property or ordering the winding-up or
liquidation of the affairs of the Issuer or the Depositor. Each Owner and the
Note Agent each further agrees that prior to the date that is one year and one
day after the termination of the Trust Agreement with respect to the Depositor,
amounts payable by the Depositor under or in connection with this Agreement as
reimbursement for out-of-pocket expenses or indemnification shall be payable
only to the extent that payment thereof will not render the Depositor insolvent
and is made from funds of the Depositor that are freely distributable by the
Depositor at the Depositor's discretion.

                                       34
<PAGE>

      (c) The provisions of this Section 9.07 shall survive the termination of
this Agreement.

      SECTION 9.08. Execution in Counterparts; Severability. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement. In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

      SECTION 9.09. No Recourse.

      (a) No recourse under or with respect to any obligation, covenant or
agreement (including, without limitation, the payment of any fees or any other
obligations) of any Purchaser (whether in its capacity as a Purchaser or as an
Owner under this Agreement) as contained in this Agreement or any other
agreement, instrument or document entered into by it pursuant hereto or in
connection herewith shall be had against any incorporator, affiliate,
stockholder, officer, employee or director of such Purchaser, as such, by the
enforcement of any assessment or by any legal or equitable proceeding, by virtue
of any statute or otherwise (except to the extent that recourse against any such
Person arises from the gross negligence or willful misconduct of such Person);
it being expressly agreed and understood that the agreements of each Purchaser
contained in this Agreement and all of the other agreements, instruments and
documents entered into by it pursuant hereto or in connection herewith are, in
each case, solely the corporate obligations of such Purchaser, and that no
personal liability whatsoever shall attach to or be incurred by any
incorporator, stockholder, affiliate, officer, employee or director of any
Purchaser, as such, or any of them, under or by reason of any of the
obligations, covenants or agreements of any Purchaser contained in this
Agreement or in any other such instruments, documents or agreements, or which
are implied therefrom, and that any and all personal liability of each
incorporator, stockholder, affiliate, officer, employee or director of any
Purchaser, or any of them, for breaches by any Purchaser of any such
obligations, covenants or agreements, which liability may arise either at common
law or at equity, or by statute or constitution, or otherwise, is hereby
expressly waived except to the extent that such personal liability of any such
Person arises from the gross negligence or willful misconduct of such Person.

      (b) Notwithstanding anything contained in this Agreement, no Conduit
Purchaser shall have any obligation to pay any amount required to be paid by it
hereunder to any of the Liquidity Provider, the Note Agent or any Owner, in
excess of any amount available to such Conduit Purchaser after paying or making
provision for the payment of its Commercial Paper Notes. All payment obligations
of each Conduit Purchaser hereunder are contingent upon the availability of
funds in excess of the amounts necessary to pay Commercial Paper Notes; and each
of the Liquidity Provider, the Note Agent and each Owner agrees that they shall
not have a claim under Section 101(5) of the United States Bankruptcy Code if
and to the extent that any such payment obligation exceeds the amount available
to such Conduit Purchaser to pay such amounts after paying or making provision
for the payment of its Commercial Paper Notes.

                                       35
<PAGE>

      (c) The provisions of this Section 9.09 shall survive the termination of
this Agreement.

      SECTION 9.10. Confidentiality. Notwithstanding anything contained herein
to the contrary, unless the Depositor has otherwise given its prior written
consent, each Affected Person and the Note Agent hereby agrees to protect and
maintain the confidentiality of the information relating to the business and
operations of the Issuer, the Depositor and the Servicer and to the Loans as the
Issuer, the Depositor or the Servicer may from time to time disclose to each
Affected Person and the Note Agent; provided, however, that none of the Affected
Persons or the Note Agent shall be obligated to take or observe any such measure
(i) with respect to disclosures to Bank One, any Affected Person under an Asset
Purchase Agreement, any Person providing credit support to a Purchaser or any
rating agency and (ii) if to do so would, in the reasonable judgment of such
Affected Person or the Note Agent, as the case may be, (a) be inconsistent with
any Requirement of Law or compliance by such Affected Person or the Note Agent
with any binding request of any regulatory body having jurisdiction over such
Affected Person or the Note Agent, as the case may be, or (b) materially and
adversely affect the ability of such Affected Person or the Note Agent to
perform its obligations hereunder or in connection herewith or to enforce its
rights hereunder or in connection herewith.

      Notwithstanding anything herein to the contrary, each party hereto (and
each employee, representative, or other agent of any of the foregoing) may
disclose to any and all persons, without limitation of any kind, the "tax
treatment" and "tax structure" (in each case, within the meaning of Treasury
Regulation Section 1.6011-4) of the transaction contemplated hereby and all
materials of any kind (including opinions or other tax analyses) that are or
have been provided to any of the foregoing relating to such tax treatment or tax
structure, and it is hereby confirmed that each of the foregoing has been so
authorized since the commencement of discussions regarding the transaction
contemplated hereby.

      SECTION 9.11. Limitation on Liability. It is expressly understood and
agreed by the parties hereto that (a) this Note Purchase Agreement is executed
and delivered by Wilmington Trust Company, not individually or personally, but
solely as Owner Trustee of Option One Owner Trust 2003-4, in the exercise of the
powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company, individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties hereto and by any
Person claiming by, through or under the parties hereto and (d) under no
circumstances shall Wilmington Trust Company be personally liable for the
payment of any indebtedness or expenses of the Issuer or be liable for the
breach or failure of any obligation, representation, warranty or covenant made
or undertaken by the Issuer under this Note Purchase Agreement or any other
related documents.

                                       36
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: /s/ William L. O'Neill
                                            ------------------------------------
                                           Name:  William L. O'Neill
                                           Title: Senior Vice President

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: /s/ William L. O'Neill
                                            ------------------------------------
                                           Name:  William L. O'Neill
                                           Title: Senior Vice President

                                        OPTION ONE OWNER TRUST 2003-4, as Issuer

                                        By: Wilmington Trust Company, not in its
                                        individual capacity, but solely as Owner
                                        Trustee

                                        By:_____________________________________
                                           Name:
                                           Title:

                                 Signature Page
                                       to
                             Note Purchase Agreement

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE OWNER TRUST 2003-4, as Issuer

                                        By: Wilmington Trust Company, not in its
                                        individual capacity, but solely as Owner
                                        Trustee

                                        By: /s/ Patricia A. Evans
                                            ------------------------------------
                                            Name: Patricia A. Evans
                                            Title: Assistant Vice President

                                 Signature Page
                                       to
                             Note Purchase Agreement

<PAGE>

                                        FALCON ASSET SECURITIZATION
                                        CORPORATION, as a Conduit Purchaser

                                        By: /s/ Daniel J. Clarke
                                            ------------------------------------
                                            Name:  Daniel J. Clarke, Jr.
                                            Title: Authorized Signatory

                                        JUPITER SECURITIZATION CORPORATION,
                                        as a Conduit Purchaser

                                        By: /s/ Daniel J. Clarke
                                            ------------------------------------
                                            Name:  Daniel J. Clarke, Jr.
                                            Title: Authorized Signatory

                                        PREFERRED RECEIVABLES FUNDING
                                        CORPORATION, as a Conduit Purchaser

                                        By: /s/ Daniel J. Clarke
                                            ------------------------------------
                                            Name:  Daniel J. Clarke, Jr.
                                            Title: Authorized Signatory

                                        BANK ONE, N.A., as a Committed Purchaser
                                        and as Note Agent

                                        By: /s/ Daniel J. Clarke
                                            ------------------------------------
                                            Name:  Daniel J. Clarke, Jr.
                                            Title: Managing Director

                                 Signature Page
                                       to
                            Note Purchase Agreement

<PAGE>

                                                                      SCHEDULE I

                                   COMMITMENTS

<TABLE>
<CAPTION>
COMMITTED PURCHASER                     COMMITMENT
- -------------------                     ----------
<S>                                   <C>
Bank One, N.A.                        $1,020,000,000
</TABLE>

<PAGE>

                                                                     SCHEDULE II

                                NOTICE ADDRESSES

If to Falcon Asset Securitization Corporation:

                  c/o Bank One, NA, as Note Agent
                  Asset Backed Finance
                  Suite IL1-0079, 1-19
                  1 Bank One Plaza
                  Chicago, Illinois 60670-0079
                  Facsimile No.: (312) 732-1844
                  Telephone No.: (312) 732-2960

With a copy to the Note Agent;

If to Jupiter Securitization Corporation:

                  c/o Bank One, NA, as Note Agent
                  Asset Backed Finance
                  Suite IL1-0079, 1-19
                  1 Bank One Plaza
                  Chicago, Illinois 60670-0079
                  Facsimile No.: (312) 732-1844
                  Telephone No.: (312) 732-2960

With a copy to the Note Agent;

If to Preferred Receivables Funding Corporation:

                  c/o Bank One, NA, as Note Agent
                  Asset Backed Finance
                  Suite IL1-0079, 1-19
                  1 Bank One Plaza
                  Chicago, Illinois 60670-0079
                  Facsimile No.: (312) 732-1844
                  Telephone No.: (312) 732-2960

With a copy to the Note Agent;

<PAGE>

If to the Note Agent:

                  Asset Backed Finance
                  Suite IL1-0596, 1-21
                  1 Bank One Plaza
                  Chicago, Illinois 60670-0596
                  Facsimile No.: (312) 732-4487
                  Telephone No.: (312) 732-2960

If to the Issuer:

                  Option One Owner Trust 2003-4
                  c/o Wilmington Trust Company
                  One Rodney Square North
                  1100 North Market Street
                  Wilmington, Delaware 19890
                  Attention: Corporate Trust Administration
                  Facsimile No.: (302) 636-4144
                  Telephone No.: (302) 636-1000

If to the Depositor:

                  Option One Loan Warehouse Corporation
                  3 Ada Drive
                  Irvine, California 92618
                  Attention: William O'Neill
                  Facsimile No.: (949) 790-7540
                  Telephone No.: (949) 790-7504

If to the Servicer:

                  Option One Mortgage Corporation
                  3 Ada Drive
                  Irvine, California 92618
                  Attention: William O'Neill
                  Facsimile No.: (949) 790-7540
                  Telephone No.: (949) 790-7504
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.67
<SEQUENCE>27
<FILENAME>c91685exv10w67.txt
<DESCRIPTION>AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.67

                                 AMENDMENT NO. 1
                                       TO
                             NOTE PURCHASE AGREEMENT

            This AMENDMENT NO. 1 (the "Amendment") dated as of August 6, 2004,
to the Note Purchase Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Note Purchase Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation (the "Servicer"), Option One Loan
Warehouse Corporation (the "Depositor"), Falcon Asset Securitization Corporation
("Falcon"), Jupiter Securitization Corporation ("Jupiter"), Preferred
Receivables Funding Corporation ("Prefco" and, together with Flacon and Jupiter,
the "Conduit Purchasers"), the financial institutions party thereto (the
"Committed Purchasers") and Bank One, NA (Main Office Chicago) (the "Note
Agent"). Capitalized terms used herein but not specifically defined herein shall
have the meanings given to such terms in the Note Purchase Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, the Servicer, the Depositor, the Conduit Purchasers,
the Committed Purchasers and the Note Agent are parties to the Note Purchase
Agreement.

            (2) The Issuer has requested that the Committed Purchasers extend
the Commitment Termination Date for an additional 364 days.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Note Purchase Agreement as set forth
herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the
definition of "Commitment Termination Date" set forth in Section 1.01 of the
Note Purchase Agreement is hereby amended by deleting the reference to "August
6, 2004" and substituting therefor a reference to "August 5, 2005".

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Note Agent shall have
received an executed counterpart of this Amendment from each of the parties
hereto.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Note Purchase Agreement, as
amended by this Amendment, constitute legal, valid and binding obligations of
such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by

<PAGE>

bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally and general equitable principles.

      SECTION 4. Reference to and the Effect on the Note Purchase Agreement.

            (a) On and after the effective date of this Amendment, each
reference in the Note Purchase Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Note Purchase
Agreement and each reference to the Note Purchase Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Note
Purchase Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Note Purchase Agreement is hereby ratified and
confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Costs and Expenses. The Issuer agrees to pay on demand all
reasonable costs and expenses of the Note Agent in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Note Agent with respect thereto and with respect to advising the Note Agent as
to its respective rights and responsibilities hereunder and thereunder.

      SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

      SECTION 7. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                      -2-
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                    OPTION ONE OWNER TRUST 2003-4,
                                    as Issuer

                                    By: Wilmington Trust Company, not in its
                                        individual capacity, but solely as
                                        Owner Trustee

                                    By:________________________________
                                       Name:
                                       Title:

                                    OPTION ONE LOAN WAREHOUSE
                                    CORPORATION, as Depositor

                                    By: ____________________________________
                                       Name:
                                       Title:

                                    OPTION ONE MORTGAGE CORPORATION, as
                                    Servicer

                                    By: _____________________________________
                                       Name:
                                       Title:

                                 Signature Page
                                       to
                   Amendment No. 1 to Note Purchase Agreement

<PAGE>

                                    FALCON ASSET SECURITIZATION
                                    CORPORATION, as a Conduit Purchaser

                                    By:________________________________
                                       Name: Beth M. Provanzana
                                       Title: Authorized Signer

                                    JUPITER SECURITIZATION CORPORATION,
                                    as a Conduit Purchaser

                                    By:_________________________________
                                       Name: Beth M. Provanzana
                                       Title: Authorized Signer

                                    PREFERRED RECEIVABLES FUNDING
                                    CORPORATION, as a Conduit Purchaser

                                    By:____________________________________
                                       Name: Beth M. Provanzana
                                       Title: Authorized Signer

                                    BANK ONE, N.A., as a Committed Purchaser
                                    and as Note Agent

                                    By:______________________________________
                                       Name: Beth M. Provanzana
                                       Title: Vice President

                                 Signature Page
                                       to
                   Amendment No. 1 to Note Purchase Agreement

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.68
<SEQUENCE>28
<FILENAME>c91685exv10w68.txt
<DESCRIPTION>AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.68

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 2
                                       TO
                             NOTE PURCHASE AGREEMENT

            This AMENDMENT NO. 2 (the "Amendment") dated as of August 24, 2004,
to the Note Purchase Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Note Purchase Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation (the "Servicer"), Option One Loan
Warehouse Corporation (the "Depositor"), Falcon Asset Securitization Corporation
("Falcon"), Jupiter Securitization Corporation ("Jupiter"), Preferred
Receivables Funding Corporation ("Prefco" and, together with Falcon and Jupiter,
the "Conduit Purchasers"), the financial institutions party thereto (the
"Committed Purchasers") and Bank One, NA (Main Office Chicago) (the "Note
Agent"). Capitalized terms used herein but not specifically defined herein shall
have the meanings given to such terms in the Note Purchase Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, the Servicer, the Depositor, the Conduit Purchasers,
the Committed Purchasers and the Note Agent are parties to the Note Purchase
Agreement.

            (2) The Issuer has requested that the Purchasers agree to increase
the Maximum Note Principal Balance.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Note Purchase Agreement as set forth
herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the Note
Purchase Agreement is hereby amended as follows:

            (a) The definition of "Maximum Note Principal Balance" set forth in
Section 1.01 of the Note Purchase Agreement is hereby restated in its entirety
as follows:

            "Maximum Note Principal Balance" means (i) from August 24, 2004
            through October 31, 2004, $1,500,000,000 and (ii) thereafter,
            $1,000,000,000, in each case, as such amount may be increased or
            decreased in accordance with the terms of this Agreement.

            (b) Schedule I to the Note Purchase Agreement is hereby replaced
with Schedule I attached hereto.

<PAGE>

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Note Agent shall have
received the following:

            (a) an executed counterpart of this Amendment from each of the
parties hereto;

            (b) a Note payable to the order of Bank One, NA (Main Office
Chicago), with a Maximum Note Principal Balance of $1,500,000,000, executed by
the Issuer and authenticated by the Indenture Trustee; and

            (c) confirmation that the Note issued to Bank One, NA on August 8,
2003 with a Maximum Note Principal Balance of $1,000,000,000 has been cancelled
by the Indenture Trustee pursuant to the terms of Section 2.07 of the Indenture.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Note Purchase Agreement, as
amended by this Amendment, constitute legal, valid and binding obligations of
such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles.

            SECTION 4. Reference to and the Effect on the Note Purchase
Agreement.

      (a) On and after the effective date of this Amendment, each reference in
the Note Purchase Agreement to "this Agreement", "hereunder", "hereof, "herein"
or words of like import referring to the Note Purchase Agreement and each
reference to the Note Purchase Agreement in any certificate delivered in
connection therewith, shall mean and be a reference to the Note Purchase
Agreement as amended hereby.

      (b) Each of the parties hereto hereby agrees that, except as specifically
amended above, the Note Purchase Agreement is hereby ratified and confirmed and
shall continue to be in full force and effect and enforceable, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws relating to or limiting creditors' rights generally and
general equitable principles.

      SECTION 5. Costs and Expenses. The Issuer agrees to pay on demand all
reasonable costs and expenses of the Note Agent in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Note Agent with respect thereto and with respect to advising the Note Agent as
to its respective rights and responsibilities hereunder and thereunder.

      SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

                                     - 2 -
<PAGE>

      SECTION 7. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                     - 3 -
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: /s/ Mary Kay Pupillo
                                            ------------------------------------
                                            Name: Mary Kay Pupillo
                                            Title: Assistant Vice President

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: ____________________________________
                                            Name:
                                            Title:

                                 Signature Page
                                       to

Amendment No. 2 to Note Purchase Agreement

<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Assistant Secretary

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Vice President

                                 Signature Page
                                       to

Amendment No. 2 to Note Purchase Agreement
<PAGE>

                                   FALCON ASSET SECURITIZATION
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                   JUPITER SECURITIZATION CORPORATION,
                                   as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                   PREFERRED RECEIVABLES FUNDING
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                   BANK ONE, N. A., as a Committed Purchaser and
                                   as Note Agent

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                 Signature Page
                                       to

Amendment No. 2 to Note Purchase Agreement

<PAGE>

                                                                      SCHEDULE I

                                   COMMITMENTS

COMMITTED PURCHASER          COMMITMENT

Bank One, N.A.              (i) from August 24, 2004 through October 31,
                             2004, $1,500,000,000 and (ii) thereafter,
                             $1,000,000,000
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.69
<SEQUENCE>29
<FILENAME>c91685exv10w69.txt
<DESCRIPTION>AMENDMENT NO. 3 TO NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.69

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 3
                                       TO
                             NOTE PURCHASE AGREEMENT

            This AMENDMENT NO. 3 (the "Amendment") dated as of October 29, 2004,
to the Note Purchase Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Note Purchase Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation (the "Servicer"), Option One Loan
Warehouse Corporation (the "Depositor"), Falcon Asset Securitization Corporation
("Falcon"), Jupiter Securitization Corporation ("Jupiter"), Preferred
Receivables Funding Corporation ("Prefco" and, together with Falcon and Jupiter,
the "Conduit Purchasers"), the financial institutions party thereto (the
"Committed Purchasers") and Bank One, NA (Main Office Chicago) (the "Note
Agent"). Capitalized terms used herein but not specifically defined herein shall
have the meanings given to such terms in the Note Purchase Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, the Servicer, the Depositor, the Conduit Purchasers,
the Committed Purchasers and the Note Agent are parties to the Note Purchase
Agreement.

            (2) The Issuer has requested that the Purchasers agree to increase
the Maximum Note Principal Balance.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Note Purchase Agreement as set forth
herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the Note
Purchase Agreement is hereby amended as follows:

            (a) The definition of "Maximum Note Principal Balance" set forth in
Section 1.01. of the Note Purchase Agreement is hereby restated in its entirety
as follows:

            "Maximum Note Principal Balance" means (i) from October 31, 2004
            through November 30, 2004, $1,500,000,000 and (ii) thereafter,
            $1,000,000,000, in each case, as such amount may be increased or
            decreased in accordance with the terms of this Agreement.

            (b) Schedule I to the Note Purchase Agreement is hereby replaced
with Schedule I attached hereto.

<PAGE>

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Note Agent shall have
received the following:

            (a) an executed counterpart of this Amendment from each of the
parties hereto.

      SECTIONS 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Note Purchase Agreement, as
amended by this Amendment, constitute legal, valid and binding obligations of
such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles.

      SECTION 4. Reference to and the Effect on the Note Purchase Agreement.

            (a) On and after the effective date of this Amendment, each
reference in the Note Purchase Agreement to "this Agreement", "hereunder",
"hereof, "herein" or words of like import referring to the Note Purchase
Agreement and each reference to the Note Purchase Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Note
Purchase Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Note Purchase Agreement is hereby ratified and
confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Costs and Expenses. The Issuer agrees to pay on demand all
reasonable costs and expenses of the Note Agent in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Note Agent with respect thereto and with respect to advising the Note Agent as
to its respective rights and responsibilities hereunder and thereunder.

      SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

      SECTION 7. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                     - 2 -
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: /s/ Mary Kay Pupillo
                                            ------------------------------------
                                            NAME: MARY KAY PUPILLO
                                            Title: Assistant Vice President

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: ____________________________________
                                            Name:
                                            Title:

                                 Signature Page
                                       to

Amendment No. 3 to Note Purchase Agreement

<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee


                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Assistant Secretary

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Vice President

                                 Signature Page
                                       to

Amendment No. 3 to Note Purchase Agreement

<PAGE>

                                   FALCON ASSET SECURITIZATION
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   JUPITER SECURITIZATION CORPORATION,
                                   as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   PREFERRED RECEIVABLES FUNDING
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   BANK ONE, N.A., as a Committed Purchaser and
                                   as Note Agent

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                 Signature Page
                                       to

Amendment No. 3 to Note Purchase Agreement
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.70
<SEQUENCE>30
<FILENAME>c91685exv10w70.txt
<DESCRIPTION>AMENDMENT NO. 4 TO NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   EXHIBIT 10.70

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 4
                                       TO
                             NOTE PURCHASE AGREEMENT

            This AMENDMENT NO. 4 (the "Amendment") dated as of November 30,
2004, to the Note Purchase Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Note Purchase Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation (the "Servicer"), Option One Loan
Warehouse Corporation (the "Depositor"), Falcon Asset Securitization Corporation
("Falcon"), Jupiter Securitization Corporation ("Jupiter"), Preferred
Receivables Funding Corporation ("Prefco" and, together with Falcon and Jupiter,
the "Conduit Purchasers"), the financial institutions party thereto (the
"Committed Purchasers") and JPMorgan Chase Bank, N.A. (successor by merger to
Bank One, NA (Main Office Chicago)) (the "Note Agent"). Capitalized terms used
herein but not specifically defined herein shall have the meanings given to such
terms in the Note Purchase Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, the Servicer, the Depositor, the Conduit Purchasers,
the Committed Purchasers and the Note Agent are parties to the Note Purchase
Agreement.

            (2) The Issuer has requested that the Purchasers agree to increase
the Maximum Note Principal Balance.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Note Purchase Agreement as set forth
herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the Note
Purchase Agreement is hereby amended as follows:

            (a) The definition of "Maximum Note Principal Balance" set forth in
Section 1.01 of the Note Purchase Agreement is hereby restated in its entirety
as follows:

            "Maximum Note Principal Balance" means (i) from November 30, 2004
            through January 31, 2005, $1,500,000,000 and (ii) thereafter,
            $1,000,000,000, in each case, as such amount may be increased or
            decreased in accordance with the terms of this Agreement.

            (b) Schedule I to the Note Purchase Agreement is hereby replaced
with Schedule I attached hereto.

<PAGE>

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Note Agent shall have
received the following:

            (a) an executed counterpart of this Amendment from each of the
parties hereto.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Note Purchase Agreement, as
amended by this Amendment, constitute legal, valid and binding obligations of
such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles.

      SECTION 4. Reference to and the Effect on the Note Purchase Agreement.

            (a) On and after the effective date of this Amendment, each
reference in the Note Purchase Agreement to "this Agreement", "hereunder",
"hereof, "herein" or words of like import referring to the Note Purchase
Agreement and each reference to the Note Purchase Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Note
Purchase Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Note Purchase Agreement is hereby ratified and
confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Costs and Expenses. The Issuer agrees to pay on demand all
reasonable costs and expenses of the Note Agent in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Note Agent with respect thereto and with respect to advising the Note Agent as
to its respective rights and responsibilities hereunder and thereunder.

      SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

           SECTION 7. Governing Law. This Amendment shall be construed in
accordance with, and governed by the laws of the State of New York, without
giving effect to its conflicts of law provisions.

                                     - 2 -
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: /s/ Erwin M. Soriano
                                            ------------------------------------
                                            Name: ERWIN M. SORIANO
                                            Titles: Assistant vice President

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: ____________________________________
                                            Name:
                                            Title:

                                 Signature Page
                                       to

Amendment No. 4 to Note Purchase Agreement

<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                        OPTION ONE OWNER TRUST 2003-4,
                                        as Issuer

                                        By: Wilmington Trust Company, not in its
                                            individual capacity, but solely as
                                            Owner Trustee

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        OPTION ONE LOAN WAREHOUSE
                                        CORPORATION, as Depositor

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Assistant Secretary

                                        OPTION ONE MORTGAGE CORPORATION, as
                                        Servicer

                                        By: /s/ Charles R. Fulton
                                            ------------------------------------
                                            Name: Charles R. Fulton
                                            Title: Vice President

                                 Signature Page
                                       to

Amendment No. 4 to Note Purchase Agreement

<PAGE>

                                   FALCON ASSET SECURITIZATION
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   JUPITER SECURITIZATION CORPORATION,
                                   as a Conduit Purchaser

                                   BY: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   PREFERRED RECEIVABLES FUNDING
                                   CORPORATION, as a Conduit Purchaser

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Authorized Signer

                                   JPMORGAN CHASE BANK, N.A., successor by
                                   merger to BANK ONE, NA (Main Office Chicago),
                                   as a Committed Purchaser and as Note Agent

                                   By: /s/ Daniel J. Clarke
                                       -----------------------------------------
                                       Name: Daniel J. Clarke, Jr.
                                       Title: Managing Director

                                 Signature Page
                                       to

Amendment No. 4 to Note Purchase Agreement

<PAGE>

                                                                      SCHEDULE I

                                   COMMITMENTS

<TABLE>
<CAPTION>
COMMITTED PURCHASER                         COMMITMENT
- -------------------                         ----------
<S>                                         <C>
JP Morgan Chase Bank, N.A., successor by    (i) from November 30, 2004 through January
merger to Bank One, NA (Main Office         31, 2005, $1,500,000,000 and (ii) thereafter,
Chicago)                                    $1,000,000,000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.71
<SEQUENCE>31
<FILENAME>c91685exv10w71.txt
<DESCRIPTION>AMENDMENT NO. 5 TO NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>

                                                                   Exhibit 10.71

                                                                  EXECUTION COPY

                                 AMENDMENT NO. 5
                                       TO
                             NOTE PURCHASE AGREEMENT

            This AMENDMENT NO. 5 (the "Amendment") dated as of January 31, 2005,
to the Note Purchase Agreement dated as of August 8, 2003 (as amended,
supplemented or otherwise modified hereby and from time to time hereafter, the
"Note Purchase Agreement") by and among Option One Owner Trust 2003-4 (the
"Issuer"), Option One Mortgage Corporation (the "Servicer"), Option One Loan
Warehouse Corporation (the "Depositor"), Falcon Asset Securitization Corporation
("Falcon"), Jupiter Securitization Corporation ("Jupiter"), Preferred
Receivables Funding Corporation ("Prefco" and, together with Falcon and Jupiter,
the "Conduit Purchasers"), the financial institutions party thereto (the
"Committed Purchasers") and JPMorgan Chase Bank, N.A. (successor by merger to
Bank One, NA (Main Office Chicago)) (the "Note Agent"). Capitalized terms used
herein but not specifically defined herein shall have the meanings given to such
terms in the Note Purchase Agreement.

            PRELIMINARY STATEMENTS:

            (1) The Issuer, the Servicer, the Depositor, the Conduit Purchasers,
the Committed Purchasers and the Note Agent are parties to the Note Purchase
Agreement.

            (2) The Issuer has requested that the Purchasers agree to increase
the Maximum Note Principal Balance.

            (3) In consideration of the mutual agreements contained herein, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto have agreed to amend the Note Purchase Agreement as set forth
herein.

            NOW, THEREFORE, the parties hereto agree as follows:

      SECTION 1. Amendment. Effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, the Note
Purchase Agreement is hereby amended as follows:

            (a) The definition of "Maximum Note Principal Balance" set forth in
Section 1.01 of the Note Purchase Agreement is hereby restated in its entirety
as follows:

            "Maximum Note Principal Balance" means (i) from January 31, 2005
            through April 30, 2005, $1,500,000,000 and (ii) thereafter,
            $1,000,000,000, in each case, as such amount may be increased or
            decreased in accordance with the terms of this Agreement.

<PAGE>

            (b) Schedule I to the Note Purchase Agreement is hereby replaced
with Schedule I attached hereto.

      SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, the Note Agent shall have
received the following:

            (a) an executed counterpart of this Amendment from each of the
parties hereto.

      SECTION 3. Representations and Warranties. Each of the parties hereto
represents and warrants that this Amendment and the Note Purchase Agreement, as
amended by this Amendment, constitute legal, valid and binding obligations of
such Person enforceable against such Person in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles.

      SECTION 4. Reference to and the Effect on the Note Purchase Agreement.

            (a) On and after the effective date of this Amendment, each
reference in the Note Purchase Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Note Purchase
Agreement and each reference to the Note Purchase Agreement in any certificate
delivered in connection therewith, shall mean and be a reference to the Note
Purchase Agreement as amended hereby.

            (b) Each of the parties hereto hereby agrees that, except as
specifically amended above, the Note Purchase Agreement is hereby ratified and
confirmed and shall continue to be in full force and effect and enforceable,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or limiting creditors' rights
generally and general equitable principles.

      SECTION 5. Costs and Expenses. The Issuer agrees to pay on demand all
reasonable costs and expenses of the Note Agent in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Note Agent with respect thereto and with respect to advising the Note Agent as
to its respective rights and responsibilities hereunder and thereunder.

      SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.

      SECTION 7. Governing Law. This Amendment shall be construed in accordance
with, and governed by the laws of the State of New York, without giving effect
to its conflicts of law provisions.

                                      -2-
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.

                                    OPTION ONE OWNER TRUST 2003-4,
                                    as Issuer

                                    By: Wilmington Trust Company, not in its
                                        individual capacity, but solely as
                                        Owner Trustee

                                    By: /s/ Mary Kay Pupillo
                                        -------------------------------
                                            Name:
                                            Title:

                                    OPTION ONE LOAN WAREHOUSE
                                    CORPORATION, as Depositor

                                    By: /s/ C.R. Fulton
                                        -------------------------------
                                        Name:
                                        Title:

                                    OPTION ONE MORTGAGE CORPORATION, as
                                    Servicer

                                    By: /s/ C.R. Fulton
                                        ------------------------------
                                        Name:
                                        Title:

                                 Signature Page
                                       to
                   Amendment No. 4 to Note Purchase Agreement

<PAGE>

                                 FALCON ASSET SECURITIZATION
                                 CORPORATION, as a Conduit Purchaser

                                 By: /s/ Daniel J. Clarke, Jr.
                                     -----------------------------------
                                     Name: Daniel J. Clarke, Jr.
                                     Title: Authorized Signer

                                 JUPITER SECURITIZATION CORPORATION,
                                 as a Conduit Purchaser

                                 By: /s/ Daniel J. Clarke, Jr.
                                     -------------------------------
                                     Name: Daniel J. Clarke, Jr.
                                     Title: Authorized Signer

                                 PREFERRED RECEIVABLES FUNDING
                                 CORPORATION, as a Conduit Purchaser

                                 By: /s/ Daniel J. Clarke, Jr.
                                     ---------------------------------
                                     Name: Daniel J. Clarke, Jr.
                                     Title: Authorized Signer

                                 JPMORGAN CHASE BANK, N.A., successor by merger
                                 to BANK ONE, NA (Main Office Chicago), as a
                                 Committed Purchaser and as Note Agent

                                 By: /s/ Daniel J. Clarke, Jr.
                                     ------------------------------
                                     Name: Daniel J. Clarke, Jr.
                                     Title: Managing Director

                                Signature Page
                                       to
                   Amendment No. 4 to Note Purchase Agreement

<PAGE>

                                                                      SCHEDULE I

                                  COMMITMENTS

<TABLE>
<CAPTION>
          COMMITTED PURCHASER                              COMMITMENT
          -------------------              ---------------------------------------
<S>                                        <C>
JPMorgan Chase Bank, N.A., successor by    (i) from January 31, 2005 through April
merger to Bank One, NA (Main Office        30, 2005, $1,500,000,000 and (ii)
Chicago)                                   thereafter, $1,000,000,000
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>32
<FILENAME>c91685exv12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                      EXHIBIT 12

                                H&R BLOCK, INC.
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                             (AMOUNTS IN THOUSANDS)

<Table>
<Caption>
                                                                             Restated     Restated     Restated    Restated
                                                                  2005         2004         2003         2002        2001
                                                               ----------   ----------   ----------    --------    --------
<S>                                                            <C>          <C>          <C>           <C>         <C>

Pretax income before change in accounting principle            $1,017,715   $1,162,975   $  855,564    $709,136    $459,169
                                                               ==========   ==========   ==========    ========    ========

FIXED CHARGES:
   Interest expense                                                87,924       84,556       92,644     116,141     242,551
   Interest portion of net rent expense(a)                         91,755       80,390       71,821      63,550      59,309
                                                               ----------   ----------   ----------    --------    --------

Total fixed charges                                               179,679      164,946      164,465     179,691     301,860
                                                               ----------   ----------   ----------    --------    --------

Earnings before income taxes and fixed charges                 $1,197,394   $1,327,921   $1,020,029    $888,827    $761,029
                                                               ==========   ==========   ==========    ========    ========

Ratio of earnings to fixed charges                                    6.7          8.1          6.2         4.9         2.5
                                                               ==========   ==========   ==========    ========    ========
</Table>

(a) One-third of net rent expense is the portion deemed representative of the
    interest factor.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>33
<FILENAME>c91685exv21.txt
<DESCRIPTION>SUBSIDIARIES OF H&R BLOCK, INC.
<TEXT>
<PAGE>

                                                                      EXHIBIT 21

                         SUBSIDIARIES OF H&R BLOCK, INC.

      The following is a list of the direct and indirect subsidiaries of H&R
Block, Inc., a Missouri corporation.

<TABLE>
<CAPTION>
                                                                         JURISDICTION IN
                                NAME                                     WHICH ORGANIZED
                                ----                                     ---------------
<S>                                                                      <C>
1)  H&R Block Group, Inc............................................     Delaware (1)
2)  HRB Management, Inc.............................................     Missouri (2)
3)  H&R Block Tax and Financial Services Limited....................     United Kingdom (3)
4)  Companion Insurance, Ltd........................................     Bermuda (3)
5)  H&R Block Services, Inc.........................................     Missouri (2)
6)  H&R Block Tax Services, Inc.....................................     Missouri (4)
7)  H&R Block of Dallas, Inc........................................     Texas (5)
8)  HRB Partners, Inc...............................................     Delaware (6)
9)  HRB Texas Enterprises, Inc......................................     Missouri (5)
10) H&R Block and Associates, L.P...................................     Delaware (7)
11) H&R Block (Guam), Inc...........................................     Guam (5)
12) H&R Block Enterprises (Guam), Inc...............................     Guam (8)
13) H&R Block Canada, Inc...........................................     Canada (5)
14) Financial Stop, Inc.............................................     British Columbia (9)
15) H&R Block Canada Financial Services, Inc........................     Canada (9)
16) H&R Block Enterprises, Inc......................................     Missouri (5)
17) H&R Block Eastern Enterprises, Inc..............................     Missouri (4)
18) HRB Royalty, Inc................................................     Delaware (4)
19) H&R Block Limited...............................................     New South Wales (10)
20) West Estate Investors, LLC......................................     Missouri (11)
21) H&R Block Global Solutions (Hong Kong) Limited..................     Hong Kong (4)
22) Black Orchard Financial, Inc....................................     Delaware (4)
23) Block Financial Corporation.....................................     Delaware (2)
24) Option One Mortgage Corporation.................................     California (12)
25) Option One Mortgage Acceptance Corporation......................     Delaware (13)
26) Option One Mortgage Securities Corp.............................     Delaware (13)
27) Option One Mortgage Securities II Corp..........................     Delaware (13)
28) Premier Trust Deed Services, Inc................................     California (13)
29) Premier Mortgage Services of Washington, Inc....................     Washington (13)
30) H&R Block Mortgage Corporation..................................     Massachusetts (13)
31) Option One Insurance Agency, Inc................................     California (13)
32) Woodbridge Mortgage Acceptance Corporation......................     Delaware (13)
33) Option One Loan Warehouse Corporation...........................     Delaware (13)
34) Option One Advance Corporation..................................     Delaware (13)
35) AcuLink Mortgage Solutions, LLC.................................     Florida (14)
36) AcuLink of Alabama, LLC.........................................     Alabama (15)
37) Companion Mortgage Corporation..................................     Delaware (12)
38) Franchise Partner, Inc..........................................     Nevada (12)
39) HRB Financial Corporation.......................................     Michigan (12)
40) H&R Block Financial Advisors, Inc...............................     Michigan (16)
41) OLDE Discount of Canada.........................................     Canada (17)
42) H&R Block Insurance Agency of Massachusetts, Inc................     Massachusetts (17)
</TABLE>

<PAGE>

<TABLE>
<S>                                                                      <C>
43) HRB Property Corporation........................................     Michigan (16)
44) HRB Realty Corporation..........................................     Michigan (16)
45) 44 East Central, Inc............................................     Florida (18)
46) 4240 Hunt Road, Inc.............................................     Ohio (18)
47) 4230 West Green Oaks, Inc.......................................     Michigan (18)
48) HRB Equipment Corporation.......................................     Michigan (16)
49) Financial Marketing Services, Inc...............................     Michigan (12)
50) 2430472 Nova Scotia Co..........................................     Nova Scotia (19)
51) H&R Block Digital Tax Solutions, LLC............................     Delaware (20)
52) TaxNet Inc......................................................     California (21)
53) BFC Transactions, Inc...........................................     Delaware (12)
54) RSM McGladrey Business Services, Inc............................     Delaware (2)
55) RSM McGladrey, Inc..............................................     Delaware (22)
56) RSM McGladrey Financial Process Outsourcing, L.L.C..............     Minnesota (24)
57) Astute BPO Solutions Pvt. Ltd...................................     India (25)
58) Birchtree Financial Services, Inc...............................     Oklahoma (23)
59) Birchtree Insurance Agency, Inc.................................     Missouri (27)
60) Pension Resources, Inc..........................................     Illinois (23)
61) FM Business Services, Inc.......................................     Delaware (23)
62) O'Rourke Career Connections, LLC................................     California (26)
63) Credit Union Jobs, LLC..........................................     California (24)
64) PDI Global, Inc. ...............................................     Delaware (22)
65) RSM Equico, Inc.................................................     Delaware (22)
66) RSM Equico Capital Markets, LLC.................................     Delaware (28)
67) Equico, Inc.....................................................     California (29)
68) Equico Europe Limited...........................................     United Kingdom (29)
69) RSM Equico Canada, Inc..........................................     Canada (29)
70) RSM McGladrey Business Solutions, Inc...........................     Delaware (22)
71) RSM McGladrey Insurance Services, Inc...........................     Delaware (22)
72) PWR Insurance Services, Inc.....................................     California (30)
73) RSM McGladrey Employer Services, Inc............................     Georgia (31)
74) RSM Employer Services Agency, Inc...............................     Georgia (32)
75) RSM Employer Services Agency of Florida, Inc....................     Florida (32)
76) H&R Block Small Business Resources, Inc.........................     Delaware (2)
</TABLE>

<PAGE>

Notes to Subsidiaries of H&R Block, Inc.:
- ----------------------------------------

(1)   Wholly owned subsidiary of H&R Block, Inc.

(2)   Wholly owned subsidiary of H&R Block Group, Inc.

(3)   Wholly owned subsidiary of HRB Management, Inc.

(4)   Wholly owned subsidiary of H&R Block Services, Inc.

(5)   Wholly owned subsidiary of H&R Block Tax Services, Inc.

(6)   Wholly owned subsidiary of H&R Block of Dallas, Inc.

(7)   Limited partnership in which HRB Texas Enterprises, Inc. is a 1% general
      partner and HRB Partners, Inc. is a 99% limited partner

(8)   Wholly owned subsidiary of H&R Block (Guam), Inc.

(9)   Wholly owned subsidiary of H&R Block Canada, Inc.

(10)  Wholly owned subsidiary of HRB Royalty, Inc.

(11)  Limited liability company in which H&R Block Tax Services, Inc. has a 100%
      membership interest.

(12)  Wholly owned subsidiary of Block Financial Corporation

(13)  Wholly owned subsidiary of Option One Mortgage Corporation

(14)  Limited liability company in which Option One Mortgage Corporation has a
      100% membership interest.

(15)  Limited liability company in which AcuLink Mortgage Solutions, LLC has a
      100% membership interest.

(16)  Wholly owned subsidiary of HRB Financial Corporation

(17)  Wholly owned subsidiary of H&R Block Financial Advisors, Inc.

(18)  Wholly owned subsidiary of HRB Realty Corporation

(19)  Wholly owned subsidiary of Financial Marketing Services, Inc.

(20)  Limited liability company in which Block Financial Corporation has a 100%
      membership interest.

(21)  Wholly owned subsidiary of H&R Block Digital Tax Solutions, LLC.

(22)  Wholly owned subsidiary of RSM McGladrey Business Services, Inc.

(23)  Wholly owned subsidiary of RSM McGladrey, Inc.

(24)  Limited liability company in which RSM McGladrey, Inc. has a 100%
      membership interest.

(25)  Company in which RSM McGladrey Financial Process Outsourcing, LLC owns 70%
      of the issued and outstanding stock.

(26)  Limited liability company in which RSM McGladrey, Inc. owns a 50%
      membership interest and the California Credit Union League owns a 50%
      membership interest

(27)  Wholly owned subsidiary of Birchtree Financial Services, Inc.

(28)  Limited liability company in which RSM Equico, Inc. has a 100% membership
      interest.

(29)  Wholly owned subsidiary of RSM Equico, Inc.

(30)  Wholly owned subsidiary of RSM McGladrey Insurance Services, Inc.

(31)  Company in which RSM McGladrey Business Services, Inc. owns approximately
      87% of the issued and outstanding stock.

(32)  Wholly owned subsidiary of RSM McGladrey Employer Services, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>34
<FILENAME>c91685exv23w1.htm
<DESCRIPTION>CONSENT OF KPMG LLP
<TEXT>
<HTML>
<HEAD>
<TITLE>exv23w1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 18pt"><B>Exhibit
23.1</B>
</DIV>
<p>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Consent of Independent Registered Public Accounting Firm</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board of Directors<BR>
H&#038;R Block, Inc.:
</DIV>

<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">We consent to the incorporation by reference in the registration statements on Form&nbsp;S-3 (Nos.
333-33655 and 333-118020) of Block Financial Corporation and in the registration statements on Form
S-3 (No.&nbsp;333-33655-01) and Form&nbsp;S-8 (Nos. 333-119070, 333-42143, 333-42736, 333-42738, 333-42740,
333-56400, 333-70400, 333-70402, and 333-106710) of H&#038;R Block, Inc. of our reports dated July&nbsp;29,
2005, with respect to the consolidated statements of income and comprehensive income, stockholders&#146;
equity, and cash flows for each of the years in the two-year period ended April&nbsp;30, 2005, the
related financial statement schedule, management&#146;s assessment of the effectiveness of internal
control over financial reporting as of April&nbsp;30, 2005 and the effectiveness of internal control
over financial reporting as of April&nbsp;30, 2005, which reports appear in the April&nbsp;30, 2005 annual
report on Form 10-K of H&#038;R Block, Inc.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our report dated July&nbsp;29, 2005, on management&#146;s assessment of the effectiveness of internal control
over financial reporting and the effectiveness of internal control over financial reporting as of
April&nbsp;30, 2005, expresses our opinion that H&#038;R Block, Inc. did not maintain effective internal
control over financial reporting as of April&nbsp;30, 2005 because of the effect of a material weakness
on the achievement of the objectives of the control criteria and contains an explanatory paragraph
that states that the Company did not maintain sufficient resources in the corporate tax function to
accurately identify, evaluate and report, in a timely manner, non-routine and complex transactions.
In addition, the Company had not completed the requisite historical analysis and related
reconciliations to ensure tax balances were appropriately stated prior to the completion of the
Company&#146;s internal control activities. These deficiencies resulted in errors in the Company&#146;s
accounting for income taxes. Because of these deficiencies there is a more than remote likelihood
that a material misstatement of the Company&#146;s annual or interim financial statements due to errors
in accounting for income taxes could occur and not be prevented or detected by its internal control
over financial reporting.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our report dated July&nbsp;29, 2005, on the consolidated financial statements contains an explanatory
paragraph stating that, as discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting to adopt Emerging Issues Task Force Issue No.&nbsp;00-21,
<I>Revenue Arrangements with Multiple Deliverables</I>, and Statement of Financial Accounting Standards
No.&nbsp;148, <I>Accounting for Stock-Based Compensation&#151;Transition and Disclosure</I>, during the year ended
April&nbsp;30, 2004.</DIV>


<DIV align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt; margin-top: 6pt">Our report dated July&nbsp;29, 2005, on the consolidated financial statements contains an explanatory
paragraph stating that, as discussed in note 2 to the consolidated financial statements, the
Company restated its financial statements for its fiscal year ended April&nbsp;30, 2004.</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">/s/ KPMG
LLP<br>Kansas City, Missouri<BR>
July&nbsp;29, 2005
</DIV>

<P align="center" style="font-size: 10pt">
</DIV>


</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>35
<FILENAME>c91685exv23w2.txt
<DESCRIPTION>CONSENT OF PRICEWATERCOOPERS LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.2




            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-33655) of Block Financial Corporation and in the
Registration Statements on Form S-3 (No. 333-33655-01) and Form S-8 (Nos.
33-64147, 333-42143, 333-42736, 333-42740, 333-56400, 333-70400, 333-70402,
333-106710) of H&R Block, Inc. of our report dated June 10, 2003, except for
Note 2 as to which the date is July 29, 2005, relating to the financial
statements of H&R Block, Inc., which appears in this Annual Report on Form 10-K.
We also consent to the incorporation by reference of our report dated June 10,
2003, except for Note 2 as to which the date is July 29, 2005, relating to the
financial statement schedule, which appears in this Annual Report on Form 10-K.

/s/PricewaterhouseCoopers LLP

Kansas City, Missouri
July 29, 2005

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>36
<FILENAME>c91685exv31w1.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 302 - CEO
<TEXT>
<PAGE>

                                                                    Exhibit 31.1

                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Ernst, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of H&R Block, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principals;

(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: July 29, 2005                                  /s/ Mark A. Ernst
                                                     ---------------------------
                                                     Mark A. Ernst
                                                     Chief Executive Officer
                                                     H&R Block, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>37
<FILENAME>c91685exv31w2.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 302 - EXEC. VP & CFO
<TEXT>
<PAGE>

                                                                    Exhibit 31.2

                            CERTIFICATION PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William L. Trubeck, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of H&R Block, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principals;

(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: July 29, 2005                      /s/ William L. Trubeck
                                         -----------------------------------
                                         William L. Trubeck
                                         Executive Vice President and Chief
                                         Financial Officer
                                         H&R Block, Inc.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>38
<FILENAME>c91685exv32w1.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 1350- CEO
<TEXT>
<PAGE>

                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the annual report of H&R Block, Inc. (the "Company") on
Form 10-K for the fiscal year ending April 30, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Mark A. Ernst,
Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

      (1)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                                                      /s/ Mark A. Ernst
                                                      ------------------------
                                                      Mark A. Ernst
                                                      Chief Executive Officer
                                                      H&R Block, Inc.
                                                      July 29, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>39
<FILENAME>c91685exv32w2.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO SECTION 1350 - EXEC. VP & CFO
<TEXT>
<PAGE>

                                                                    Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the annual report of H&R Block, Inc. (the "Company") on
Form 10-K for the fiscal year ending April 30, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, William L.
Trubeck, Executive Vice President and Chief Financial Officer of the Company,
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:

      (1)   The Report fully complies with the requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.

                                             /s/ William L. Trubeck
                                             ----------------------
                                             William L. Trubeck
                                             Executive Vice President and Chief
                                             Financial Officer
                                             H&R Block, Inc.
                                             July 29, 2005
</TEXT>
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