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FILED PURSUANT TO RULE 424(B)(3)
OF THE SECURITIES ACT OF 1933
REGISTRATION NO. 33-43724-02
ANNUAL APPENDIX
ANNUAL APPENDIX DATED
APRIL 15, 1998 TO PROSPECTUS
DATED NOVEMBER 12, 1991 AS
SUPPLEMENTED THROUGH MARCH 17, 1998
Discover(R) Card Trust 1991 F
7.85% Class A Credit Card Pass-Through Certificates
8.35% Class B Credit Card Pass-Through Certificates
Greenwood Trust Company
Servicer
Discover Receivables Financing Group, Inc.
Seller
The following updates the Prospectus dated November 12, 1991, as
supplemented (the "Prospectus"), used by Dean Witter Reynolds Inc. ("DWR"),
Dean Witter International Ltd. ("DWIL"), Morgan Stanley & Co. Incorporated
("MS&Co."), and Morgan Stanley International Limited ("MSIL") in connection
with offers and sales of the Class A Certificates and the Class B Certificates
in market-making transactions in which any of DWR, DWIL, MS & Co., or MSIL acts
as principal.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE INVESTOR CERTIFICATES, SEE "RISK FACTORS" ON
PAGE 14. ALL REFERENCES TO "SPECIAL CONSIDERATIONS" SHALL BE REPLACED WITH
REFERENCES TO "RISK FACTORS."
1. GENERAL
On May 31, 1997, Dean Witter, Discover & Co., and Morgan Stanley Group
Inc. consummated their merger. Dean Witter, Discover & Co., the indirect
parent of Greenwood
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Trust Company and DRFG, is the surviving corporation in the merger and will
continue its corporate form under the name "Morgan Stanley Dean Witter & Co."
("MSDW").
DWR, MS & Co., MSIL and DWIL are wholly-owned subsidiaries of MSDW. The
accompanying Prospectus may be used by DWR, MS & Co., MSIL, DWIL and other
affiliates of the Company in connection with offers and sales of the securities
described therein in the course of their businesses as broker-dealers. DWR, MS
& Co., MSIL, DWIL and such other affiliates may act as principal or agent in
such transactions. Such sales, if any, will be made at varying prices related
to prevailing market prices at the time of sale or otherwise. None of DWR, MS
& Co., MSIL, DWIL or any such other affiliates is obligated to make a market
and each may discontinue any market-making activities at any time without
notice.
References in the Prospectus to Greenwood Trust Company ("Greenwood"),
Discover Receivables Financing Group, Inc. ("DRFG") and SCFC Receivables Corp.
("SRC"), as being indirect wholly-owned subsidiaries of Sears, are revised to
reflect that each is an indirect wholly-owned subsidiary of MSDW (formerly
known as Dean Witter Financial Services Group, Inc., Dean Witter, Discover &
Co. ("DWDC") and Morgan Stanley, Dean Witter, Discover & Co). See "Prospectus
Summary -- Spin-off of Dean Witter, Discover & Co." and "Greenwood Trust
Company."
References in the Prospectus to Sears Consumer Financial Corporation
("SCFC") are revised to reflect the change of its name to NOVUS Credit Services
Inc. ("NOVUS") and to reflect that it is no longer a wholly-owned subsidiary of
Sears but a wholly-owned subsidiary of MSDW.
References in the Prospectus to Discover Card Services, Inc. ("DCSI") are
replaced by references to NOVUS Services, Inc. ("NSI").
2. REPORTS TO INVESTOR CERTIFICATEHOLDERS
Delete the first sentence under the heading "Reports to Investor
Certificateholders" on page 2 of the Prospectus and replace with the following:
Monthly and annual reports containing information concerning the Trust,
prepared by the Servicer, will be made available to Certificate Owners free
of charge upon request by calling 302-323-7130, extension 328.
3. PROSPECTUS SUMMARY
Add the following after the paragraph on page 13 relating to "ERISA
Considerations":
SPIN-OFF OF DEAN WITTER, DISCOVER & CO. ... On March 1, 1993, Sears sold
through a primary initial public offering a minority interest of
approximately 20 percent in its
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wholly-owned subsidiary DWDC. Sears distributed to Sears shareholders
the balance of its ownership in DWDC in a tax-free spin-off on June 30,
1993. Through the initial public offering and the spin-off of DWDC, all
subsidiaries of DWDC (including Greenwood, DRFG and SRC) are no longer
subsidiaries of Sears. In May 1997, DWDC merged with Morgan Stanley
Group Inc. and changed its name to Morgan Stanley, Dean Witter, Discover
& Co. (now Morgan Stanley Dean Witter & Co.). DRFG believes that the
change in ownership and subsequent merger will have no material effect on
the Investor Certificates.
4. RISK FACTORS
a. Delete all text under the subheading "Consumer Protection Laws and
Regulations" on pages 14 -16 and substitute the following:
Consumer Protection Laws and Regulations. The Accounts and the
Receivables are subject to numerous federal and state consumer protection
laws and regulations that impose requirements on the making and
enforcement of consumer loans. Such laws, as well as any new laws or new
rulings regarding new or existing laws that may be adopted, may adversely
affect the Servicer's ability to collect on the Receivables or maintain
previous levels of monthly periodic finance charges, and failure by the
Servicer to comply with such requirements could adversely affect the
Servicer's ability to collect the Receivables. DRFG has agreed in the
Pooling and Servicing Agreement that if a Receivable was not created in
compliance in all material respects with all requirements of laws
applicable to DRFG and Greenwood with respect to such Receivable, and if
such noncompliance continues beyond a specified cure period and has a
material adverse effect on the interest of the Trust in all the
Receivables, DRFG will repurchase all Receivables in the Accounts
containing the Receivables affected by such noncompliance. See
"Description of the Investor Certificates -- Repurchase of Specified
Receivables." It is not anticipated that the Trustee will make any
examination of the Receivables or the records relating thereto for the
purpose of establishing the presence or absence of defects in the
Accounts, or for any other purpose. See "Certain Legal Matters Relating
to the Receivables -- Consumer Protection Laws and Debtor Relief Laws
Applicable to the Receivables."
Consumer Protection Laws and Regulations; Litigation. Greenwood is
involved from time to time in various legal proceedings that arise in the
ordinary course of its business. Greenwood does not believe that the
resolution of any of these proceedings will have a material adverse
effect on Greenwood's financial condition or on the Receivables. There
can be no assurance, however, regarding any of these effects.
b. Delete the first full paragraph on page 16 and substitute the
following:
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Legislation. The Competitive Equality Banking Act of 1987 ("CEBA")
contains provisions that limit the ability of nonbanking companies, such
as MSDW and NOVUS, to own banks. However, the legislation permits any
nonbanking company that owned a bank on March 5, 1987 to retain control
of the bank. MSDW and NOVUS are permitted to retain control of Greenwood
under this legislation. CEBA provides that if MSDW, NOVUS or Greenwood
fails to comply with certain statutory restrictions, MSDW and NOVUS will
be required to divest control of Greenwood or to limit its activities
significantly. Greenwood believes, however, that in light of the
programs it has in place, the limitations of CEBA will not have a
material impact on Greenwood's ability to service, or maintain the level
of, the Receivables. In addition, future federal or state legislation,
regulation or interpretation of federal or state legislation or
regulation could adversely affect the business of Greenwood or the
relationship of MSDW or NOVUS with Greenwood. See "Greenwood Trust
Company."
c. Insert the following after the second paragraph on page 16:
Basis Risk. In general, accounts in the Discover Card Portfolio
accrue periodic finance charges at variable rates based upon factors such
as the prevailing prime rate, the amount of a cardmember's annual
purchases and his or her payment status (although certain account
balances may accrue periodic finance charges at fixed rates, in most
instances for specified periods of time). See "The Accounts -- Billing
and Payments." As a result, a significant portion of the Receivables
currently bear interest at the prevailing prime rate plus a margin, while
the Investor Certificates bear interest at fixed rates. If there is a
decline in the prime rate, the amount of Finance Charge Collections may
be reduced, which could cause the commencement of the Amortization Period
or result in either shortfalls of Certificate Interest or losses to the
Investor Certificateholders. See "Description of the Investor
Certificates -- Amortization Events."
d. Delete the text on page 17 under the heading "Competition" and
substitute the following:
Competition in the Credit Card Industry. The credit card industry in
which the Discover Card competes is highly competitive. This competition
focuses on features and other financial incentives of credit cards such
as annual fees, finance charges, late payment fees, overlimit charges,
rebates and other enhancement features. The market includes bank-issued
credit cards (including "co-branded" cards issued by banks in cooperation
with industrial, retail or other companies) and charge cards issued by
travel and entertainment companies. The vast majority of the bank-issued
credit cards bear the Visa or MasterCard service mark and are issued by
the many banks that participate in one or both of the national bank card
networks operated by Visa U.S.A. Inc. and MasterCard International
Incorporated. The Visa and MasterCard associations have been in
existence for approximately thirty years. Cards bearing their service
marks have worldwide acceptance by merchants of goods and services and
recognition by consumers and the
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general public. Co-branded credit cards, which offer the cardholder
certain benefits relating to the industrial, retail or other business of
the bank's co-branding partner (e.g., credits towards purchases of
airline tickets or rebates for the purchase of an automobile), currently
represent a rapidly growing segment of the bank-issued credit card
market. The majority of travel and entertainment cards are issued by
American Express Company, which has been issuing cards since 1958.
Travel and entertainment cards differ in many cases from bank cards in
that they generally have no pre-established credit limits and have
limited provisions for repayment in installments. American Express
Company, through a subsidiary bank, also issues cards with both a
pre-established credit limit and provisions for repayment in
installments.
The Discover Card was introduced nationwide in 1986 and competes
with general purpose credit cards issued by other banks and with travel
and entertainment cards. Greenwood currently is the only issuer of the
Discover Card. Greenwood has also issued, and may from time to time
introduce, additional general purpose credit, charge and financial
transaction cards; however, none of the accounts associated with these
cards is included in the Discover Card Portfolio.
Many bank credit card issuers have instituted balance transfer
programs. Generally, under these transfer programs, cardholders are
offered a favorable annual percentage rate or other financial incentives
for a specified length of time on any portion of their account balances
arising from the transfer to their accounts of outstanding account
balances maintained on another credit card. The annual percentage rates
for balance transfers often are more favorable to cardholders than the
annual percentage rates for account balances arising from purchases or
cash advances.
This competition affects Greenwood's ability to obtain applicants
for Discover Card accounts, to encourage usage of the accounts by
cardmembers and to obtain participation in the Discover Card program by
service establishments. A significant adverse change in any of these
factors could result in a decrease in the level of the Receivables, and
of the receivables in the Discover Card Portfolio. If there is a
decrease in the level of Receivables, and if sufficient receivables in
Additional Accounts are not available to be added to the Trust or are not
added, an Amortization Event could result, causing the commencement of
the Amortization Period. See "Risk Factors -- Payments and Maturity" and
"Description of the Investor Certificates -- Amortization Events."
MSDW, the indirect owner of Greenwood, generally has a strategy of
issuing additional card products as appropriate in the market place. For
example, Greenwood issues the Private Issue(R) Card, certain co-branded
credit cards and expects that from time to time additional general
purpose credit card products will be introduced through Greenwood or
other MSDW subsidiaries in order to attract additional consumers. The
introduction of a new general purpose credit card product by any market
competitor poses incremental competition for Discover Card and for other
credit card issuers. Although
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Greenwood currently does not expect that the issuance of any new card by
Greenwood or another MSDW subsidiary will have a materially greater
impact on the Discover Card program than the introduction of a comparable
product by any other market competitor, no assurance can be given with
respect to the future competitive impact of such programs on the Discover
Card Portfolio.
e. Delete the text under the heading "Ability to Change Terms of the
Accounts" on page 17-18 and substitute the following:
Ability of Greenwood to Change Terms of the Accounts. Pursuant to
the Pooling and Servicing Agreement, DRFG does not transfer Accounts to
the Trust, but only the Receivables arising in the Accounts. As owner of
the Accounts, Greenwood has the right to determine the periodic finance
charges applicable from time to time to the Accounts, to alter the
minimum monthly payment required under the Accounts, to change the credit
limit with respect to the Accounts and to change various other terms with
respect to the Accounts. A decrease in the periodic finance charges or
other fees with respect to an Account could decrease the Finance Charge
Collections, which would decrease the effective yield on the Receivables
and could also cause commencement of the Amortization Period as well as
decreased protection to Investor Certificateholders against shortfalls in
Certificate Interest and against charged-off Receivables. In addition,
an increase in credit limits could result in increases in Charged-Off
Amounts, which could result in a decrease in the level of the
Receivables, and of the receivables in the Discover Card Portfolio. If
there is a decrease in the level of Receivables, and if sufficient
receivables in Additional Accounts are not available to be added to the
Trust or are not added, an Amortization Event could result, causing the
commencement of the Amortization Period. See "Description of the
Investor Certificates -- Distributions of Collections and Application of
Collections and Certain Other Amounts" and "-- Amortization Events."
The Pooling and Servicing Agreement provides that the Servicer must
administer, process and enforce the Accounts in accordance with its
customary and usual servicing procedures for servicing credit accounts
comparable to the Accounts and in accordance with its Credit Guidelines.
DRFG and Greenwood have also agreed that the terms governing an Account
will not be changed unless the change is also made to the terms of other
accounts in the Discover Card Portfolio of the same general type,
obligors of which are resident in a particular affected state or similar
jurisdiction. There can be no assurance that any such change may not
affect the Accounts to a greater or lesser degree than other accounts in
the Discover Card Portfolio. Except as set forth above, there are no
restrictions on the ability of Greenwood to change the terms of the
Accounts or the Receivables.
There can be no assurance that changes in applicable laws, changes
in the marketplace or prudent business practice might not result in a
determination by
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Greenwood to take actions that would result in other changes in the terms
of some or all of the Greenwood Discover Card accounts.
f. Delete the last two sentences under the subheading "Effects of the
Selection Process, Seasoning and Performance Characteristics" on page 18 and
substitute the following:
Based on historical experience, fixed pools of accounts (such as
the Accounts) in general experience more volatile performance
characteristics than the portfolios of accounts from which they are
selected (such as the Discover Card Portfolio), and greater monthly
variations than annual changes. See "The Accounts -- Effects of the
Selection Process" and "The Accounts -- Composition of the Accounts."
More seasoned pools of accounts generally experience somewhat lower
yields and charge-offs, as well as different payment characteristics,
than less seasoned pools of accounts. See "The Accounts -- Composition
of the Accounts -- Seasoning" and "Composition and Historical Performance
of the Discover Card Portfolio -- Composition of the Discover Card
Portfolio -- Seasoning."
5. DESCRIPTION OF THE INVESTOR CERTIFICATES
a. References under the subheadings "Repurchase of Trust Portfolio" and
"Repurchase of Specified Receivables" on pages 24-25, are revised to reflect
the assumption by SRC of repurchase obligations of Sears as described therein.
b. Delete the last sentence in the carry over paragraph on page 39 under
the subheading "Reports to Investor Certificateholders" and substitute the
following:
The statement will be made available to Certificate Owners free from
charge upon request by calling 302-323-7130, extension 328.
6. DESCRIPTION OF THE RESERVE ACCOUNT
Add the following after the last paragraph on page 45 relating to
"Description of the Reserve Account":
On April 7, 1993, the Servicer elected to replace the Class B Credit
Enhancement with a cash collateral account (the "Cash Collateral
Account") and to obtain a successor Class B Credit Enhancement Provider.
The Cash Collateral Account replaces the Reserve Account and was
established, funded and will be administered pursuant to a Loan Agreement
(the "Loan Agreement"), replacing the Reimbursement Agreement, among DRFG
as Seller, Greenwood as Servicer, the Trustee, Harris Trust and Savings
Bank ("Harris") as successor Class B Credit Enhancement Provider and a
syndicate of banks (the "Banks") named therein. Under the terms of the
Loan Agreement, Harris will act as administrator of the Cash Collateral
Account, and in such capacity Harris will
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release funds for deposit into the Investor Accounts pursuant to
instructions from the Servicer acting as attorney-in-fact for the
Trustee. Harris will have no obligation to deposit or contribute any of
its own funds into the Cash Collateral Account, and all payments under
the Class B Credit Enhancement for the benefit of the Trust will be made
solely from amounts on deposit in the Cash Collateral Account and in no
event from the assets of Harris. Harris will have only those duties,
liabilities and obligations expressly imposed on it by the Loan Agreement
in connection with the administration of the Class B Credit Enhancement.
The Cash Collateral Account has been funded with $30,800,000, an
amount equal to the Maximum Class B Credit Enhancement Amount. Unlike
the Reserve Account, however, which initially was funded entirely by DRFG
(with additional funds obtained from Aggregate Excess Servicing), the
Cash Collateral Account was funded primarily with loans (the "Loans")
from the Banks. The remaining amounts in the Cash Collateral Account
were transferred from funds previously on deposit in the Reserve Account.
The operation of the Cash Collateral Account pursuant to the Loan
Agreement is substantially similar to the Reserve Account under the
Reimbursement Agreement. Funds on deposit in the Cash Collateral Account
are available for the same purposes as those on deposit in the Reserve
Account, in each case as set forth in the Pooling and Servicing
Agreement, and will be invested in Permitted Investments. Certain
amounts that previously would have been distributed to the Holder of the
Seller Certificate under the Reimbursement Agreement will now be made
available to pay interest and, under specified circumstances principal,
on the Loans.
As required by the Pooling and Servicing Agreement, both Rating
Agencies have confirmed that the replacement of the Class B Credit
Enhancement will not cause a reduction in or withdrawal of the ratings of
the Investor Certificates currently in effect.
7. THE DISCOVER CARD BUSINESS
Delete the text under the heading "The Discover Card Business" on
pages 45-47 and substitute the following:
GENERAL
The Receivables which DRFG has conveyed to the Trust pursuant to the
Pooling and Servicing Agreement were generated from transactions made by
holders of the Discover(R) Card, a general purpose credit and financial
services card, and do not include receivables arising under the Discover
Card Corporate Card, the Private Issue Card and the co-branded cards. All
references to the Discover Card in this section entitled "The Discover
Card Business" relate exclusively to the Discover Card issued by
Greenwood. With the exception of the small number of Discover Card
Corporate Cards issued by an
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affiliate of Greenwood, Greenwood is the sole issuer of credit cards
bearing the DISCOVER service mark. Greenwood has also issued, and may
from time to time introduce, additional general purpose credit, charge
and financial transaction cards.
The Discover Card was first issued in regional pilot markets in
September 1985, and national distribution began in March 1986. The
Discover Card issued by Greenwood affords cardmembers access to a
revolving line of credit. The card can be used to purchase merchandise
and services from participating service establishments. The number of
service establishments that accept the Discover Card has continued to
increase. For the 12 months ended November 30, 1997, approximately
405,000 new service establishments were enrolled. The Discover Card can
also be used to obtain cash advances at automated teller machines and at
certain other locations throughout the United States. Cash advances can
also be obtained by means of checks written by cardmembers and drawn
against their accounts. As of November 30, 1997, there were 34.5 million
Discover Card accounts with 43.4 million cardmembers. The Discover Card
issued by Greenwood may only be used for personal, family or household
purposes due to banking statutes applicable to Greenwood. See "Greenwood
Trust Company."
Each Discover Cardmember is subject to account terms and conditions
that are uniform from state to state. See "The Accounts -- Billing and
Payments." In all cases, the agreement governing the terms and
conditions of the account (the "Cardmember Agreement") permits Greenwood
to change the credit terms, including the rate of the periodic finance
charge and the fees imposed on accounts, upon prior notice to
cardmembers. Each Discover Card account is assigned a credit limit when
the account is opened. Thereafter, individual credit limits may be
increased or decreased, at Greenwood's discretion, from time to time.
The credit limits on Discover Card accounts generally range from $1,000
to $6,000, although on occasion higher or lower limits may be authorized.
Effective March 1, 1998, a cardmember will not be granted cash advances
that exceed, in the aggregate, an amount equal to 50% of such
cardmember's credit limit.
There are additional features and services offered with the Discover
Card accounts. One is the Cashback Bonus(R), in which Greenwood annually
pays cardmembers a percentage of their purchase amounts, ranging up to
one percent, based on their annual purchases. This amount is remitted to
cardmembers in the form of a check or a credit to the cardmember's
account. No such amounts will be paid from the property of the Trust.
Another feature offered with the Discover Card accounts is a variable
rate of periodic finance charges applied to a cardmember's account
balance (except in certain limited circumstances) based on the prevailing
prime rate plus a margin, the amount of such cardmember's purchases and
the cardmember's payment history. See "The Accounts Billing and
Payments." Greenwood also offers cardmembers money market deposit
accounts, called Discover Saver's Accounts, and time deposits, called
Discover Card CDs. These deposit products offer competitive rates of
interest and are insured by the
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FDIC. To differentiate the Discover Card in the marketplace, Greenwood
from time to time tests and implements new offers, promotions and
features of the Discover Card.
Greenwood, either directly, through its processing arrangements with
its affiliate, NSI, or through processing agreements with credit card
processing facilities of unaffiliated third parties, performs all the
functions required to service and operate the Discover Card accounts.
These functions include new account solicitation, application processing,
new account fulfillment, transaction authorization and processing,
cardmember billing, payment processing, cardmember service and collection
of delinquent accounts. There are currently multiple geographically
dispersed operations centers maintained by Greenwood or NSI for servicing
cardmembers. An additional operations center is maintained for
processing accounts that have been charged-off as uncollectible.
NSI has established arrangements with service establishments to
accept the Discover Card and other credit, charge and financial
transaction cards that carry the NOVUS(R) logo for cash advances and as
the means of payment for merchandise and services. Greenwood contracts
with NSI to have cards issued by Greenwood (including the Discover Card)
accepted at those establishments. The ability to generate new
receivables requires locations where the Discover Card can be used. NSI
employs a national sales and service force to maintain and increase the
size of its service establishment base. Additional operations centers
that currently are maintained by NSI are devoted primarily to providing
customer service to service establishments. The service establishments
that accept the Discover Card encompass a wide variety of businesses,
including local and national retail establishments and specialty stores
of all types, quick service food establishments, governments,
restaurants, medical providers and warehouse clubs, and many leading
airlines, car rental companies, hotels, petroleum companies and mail
order companies.
CREDIT-GRANTING PROCEDURES
Accounts in the Discover Card Portfolio have been solicited by
various techniques and have undergone credit review to establish that the
cardmembers meet standards of stability and ability and willingness to
pay. Principally, the accounts have been solicited (i) via
"pre-selected" direct mail or telemarketing, (ii) by "take-one"
applications distributed in many service establishments that accept the
Discover Card and (iii) with various other programs targeting specific
segments of the population. Solicitations have been supported by general
broadcast and print media advertising. Potential applicants who are sent
pre-selected solicitations have met certain credit criteria relating to
their previous payment patterns and longevity of account relationships
with other credit grantors. Since September 1987, all lists have been
pre-screened though credit bureaus before mailing. Pre-screening is a
process by which an independent credit reporting agency evaluates the
lists of names supplied by Greenwood against credit-worthiness
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criteria supplied by Greenwood that are intended to provide a general
indication, based on available information, of the stability and of the
willingness and ability of such persons to repay their obligations; the
credit bureaus return to Greenwood only the names of those persons
meeting these criteria. Applicants who respond to such pre-selected
solicitations are subject to a subsequent screening upon receipt of their
completed applications, to ensure that such individuals continue to meet
selection and credit criteria. Applications that are not pre-selected
are evaluated by using credit-scoring systems (statistical evaluation
models that assign point values to credit information regarding
applications). The credit-scoring systems used by Greenwood are based on
the credit-scoring systems developed by a scoring model vendor. Certain
applications not approved under the credit-scoring systems are reviewed
by credit analysts. Any such application as to which a credit analyst
recommends approval is processed in Greenwood's main office in New
Castle, Delaware by senior bank review analysts and may be approved by
them.
As owner of the Greenwood Discover Card Accounts, Greenwood has the
right to change its credit-scoring criteria and credit-worthiness
criteria. Greenwood's application procedures and credit-scoring systems
are regularly reviewed and modified to reflect Greenwood's actual credit
experience with Discover Card account applicants and cardmembers as such
historical information becomes available. Greenwood believes that
refinements of these procedures and systems since the inception of the
Discover Card program have helped it to manage and predict its credit
losses, although there can be no assurance that these refinements will
not cause increases in credit losses in the future. Relaxation of credit
standards typically results in increases in Charged-Off Amounts, which,
under certain circumstances, may result in a decrease in the level of the
Receivables, and of the receivables in the Discover Card Portfolio. If
there is a decrease in the level of Receivables, and if sufficient
Additional Accounts are not available to be added to the Trust or are not
added, an Amortization Event could result, causing the commencement of
the Amortization Period. In addition, an increase in Charged-Off Amounts
without an offsetting increase in Finance Charge Receivables could result
in an Amortization Event, causing the commencement of the Amortization
Period.
COLLECTION EFFORTS
Efforts to collect past-due Discover Card account receivables
currently are made primarily by collections personnel of NSI or
Greenwood. Under current practice, Greenwood includes a request for
payment of past-due amounts on the monthly billing statement of all
accounts with such amounts. Accounts with past-due amounts also receive
a written notice of late fee charges, on their statements and an
additional request for payment after any monthly statement which includes
a past-due amount. Collection personnel generally initiate telephone
contact with cardmembers within 30 days after any portion of their
balance becomes past due. In the event that initial telephone contacts
fail to elicit a payment, Greenwood continues to contact the cardmember
by telephone and by mail. Greenwood also may enter into arrangements
with cardmembers to waive finance
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charges, late fees and principal due, and extend or otherwise change
payment schedules. The current policy of Greenwood is to recognize
losses and to charge off an account at the end of the sixth full calendar
month after a payment amount is first due if payment of any portion of
that amount has not been received by such time, except in cases of
bankruptcy, where an uncollectible balance may be charged off earlier.
In general, after an account has been charged off, collections personnel
of NSI or Greenwood make attempts to collect all or a portion of the
charged-off account for a period of approximately four months. If those
attempts are unsuccessful, the charged-off account is generally placed
with one or more collection agencies for a period of approximately a year
or, alternatively, Greenwood may commence legal action against the
cardmember, including legal action for the attachment of property or bank
accounts of the cardmember or the garnishment of the cardmember's wages.
Under certain circumstances, Greenwood may also sell charged-off accounts
to third parties, either before or after collection efforts have been
attempted.
Under the terms of the Pooling and Servicing Agreement, any
recoveries received on Charged-Off Accounts will be retained by Greenwood
and will not be included in the assets of the Trust. See "Description of
the Investor Certificates -- Adjustment of Investor Interest as a Result
of Charge-Offs and Reimbursement of Charge-Offs" and "Composition and
Historical Performance of the Discover Card Portfolio -- Composition of
Discover Card Portfolio." The credit granting, servicing and charge-off
policies and collection practices of Greenwood may change over time in
accordance with Greenwood's business judgment and applicable law.
8. THE ACCOUNTS
a. Add as first paragraph under the subheading "General" on page 47:
The Receivables in the Accounts as of March 1, 1998 totaled
$544,549,619. The Accounts had an average balance of $1,520 and an
average credit limit of $6,126 as of March 1, 1998.
b. Delete the text on pages 47-48 under the subheading "Billing and
Payments" and substitute the following:
All Discover Card accounts have the same billing and payment
structure. Monthly billing statements are sent by Greenwood to each
cardmember with an outstanding debit balance. Discover Card accounts are
grouped into multiple billing cycles for operational purposes. Each
billing cycle has a separate monthly billing date at which time the
activity in the related accounts during the period of approximately 28 to
34 days ending on such billing date is processed and billed to
cardmembers. The Accounts include accounts in all billing cycles.
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Each Discover cardmember with an outstanding debit balance in his or
her Discover Card account generally must make a minimum payment equal to
1/48th of the new balance on the account at the end of the billing cycle
for the account (prior to February 1996, 1/36th), rounded to the next
higher whole dollar amount, but not less than $10 or the entire balance,
whichever is less, plus any amount that is past due. Under certain
circumstances, the minimum payment is reduced by amounts paid in excess
of the minimum payment due during the previous three months and not
already so applied. From time to time, Greenwood has offered and may
continue to offer cardmembers with accounts in good standing the
opportunity to skip the minimum monthly payment, while continuing to
accrue periodic finance charges, without being considered to be past due.
Although these practices are not expected to have a material adverse
effect on the Investor Certificateholders, Collections may be reduced
during any period in which Greenwood offers cardmembers the opportunity
to skip the minimum monthly payment. A cardmember may pay the total
amount due at any time. Greenwood also may enter into arrangements with
delinquent cardmembers to extend or otherwise change payment schedules,
and to waive finance charges, late fees and principal due.
Greenwood imposes periodic finance charges on Discover Card account
balances at fixed and variable annual percentage rates. Periodic finance
charges on purchases, cash advances and balance transfers are calculated
on a daily basis, subject to a grace period that essentially provides
that periodic finance charges are not imposed if the cardmember pays his
or her entire balance each month. In general, periodic finance charges
on purchases, cash advances and balance transfers are based on a prime
rate plus a margin (currently 8.9% to 13.9%), subject to certain minimum
rates currently ranging from 12.9% to 19.8%. The rates imposed on
individual Discover Card accounts are based on purchase activity and
payment status. In addition, in connection with programs for new
cardmembers, for balance transfers, and for other promotional purposes,
certain Discover Card account balances may accrue periodic finance
charges at lower fixed rates for a specified period of time. Balances
remaining from transactions posted to accounts in billing cycles
beginning prior to February 1993 also accrue periodic finance charges at
fixed rates.
In addition to periodic finance charges, Greenwood may impose
certain other charges and fees on Discover Card accounts. Greenwood
currently charges a cash advance transaction fee equal to 2.5% of each
new cash advance, with a minimum fee of $3.00 per transaction. Greenwood
also currently charges a $20 late fee on Discover Card accounts each time
a payment has not been made by the required due date, a $20 fee for
balances exceeding a cardmember's credit limit as of the close of such
cardmember's monthly billing cycle, a $20 fee for any payment check
returned unpaid and a $20 fee for Discover Card cash advance, balance
transfer or other promotional checks that are returned by Greenwood due
to insufficient credit availability. See "Risk Factors --
13
<PAGE> 14
Consumer Protection Laws and Regulations," " Payments and Maturity" and "
Ability of the Seller to Change Terms of the Accounts."
The yield on the Accounts depends on changes in the prime rate over
time and in cardmember account usage and payment performance, none of
which can be predicted, as well as the extent to which balance transfer
offers and special promotion offers are made and accepted, and the extent
to which Greenwood changes the terms of the Cardmember Agreement.
Reductions in the yield could, if sufficiently large, cause the
commencement of the Amortization Period or result in either shortfalls of
Certificate Interest or losses to the Investor Certificateholders as the
result of charged-off Receivables, and there can be no assurance
regarding any of these effects. See "Risk Factors -- Basis Risk."
9. COMPOSITION AND HISTORICAL PERFORMANCE OF THE DISCOVER CARD PORTFOLIO
a. Add the following after the first sentence in the paragraph under the
heading "General" on page 50:
A limited number of Discover Card accounts have been opened pursuant
to credit scoring criteria materially different from the credit scoring
criteria generally used for Discover Card accounts. These accounts have
been segregated from the rest of the Discover Card Portfolio and are not
reflected in the information contained herein. None of these accounts is
included in the Trust.
b. Delete the text under the heading, "Composition of Discover Card
Portfolio" and ending before the heading "Payment of the Investor Certificates"
located on pages 50-53 and substitute the following:
COMPOSITION OF DISCOVER CARD PORTFOLIO
Geographic Distribution. The Discover Card Portfolio is not concentrated
geographically. As of November 30, 1997, the five states with the largest
receivables balances were as follows:
14
<PAGE> 15
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL RECEIVABLES BALANCE
OF DISCOVER CARD PORTFOLIO
STATE AS OF NOVEMBER 30, 1997
- ----- ---------------------------------------
<S> <C>
California........................... 11.3%
Texas................................ 9.3%
New York............................. 6.7%
Florida.............................. 5.9%
Illinois............................. 5.0%
</TABLE>
No other state accounted for more than 5% of the total receivables balance
of the Discover Card Portfolio as of November 30, 1997.
Credit Limit Information. Credit limit information as of November 30,
1997 with respect to the Discover Card Portfolio is summarized as follows:
<TABLE>
<CAPTION>
RECEIVABLES PERCENTAGE OF
OUTSTANDING TOTAL RECEIVABLES
CREDIT LIMIT (000)'S OUTSTANDING
- ------------ ----------- --------------------
<S> <C> <C>
Less than or equal to $1,000.00...... $528,792 1.8%
$1,000.01 to $2,000.00............... $4,088,654 13.7%
$2,000.01 to $3,000.00............... $3,927,544 13.2%
Over $3,000.00....................... $21,207,550 71.3%
----------- --------------------
Total................................ $29,752,540 100.0%
----------- ====================
</TABLE>
Seasoning. As of November 30, 1997, 84.5% of the accounts in the Discover
Card Portfolio were at least 24 months old. The distribution of the age of
accounts in the Discover Card Portfolio as of November 30, 1997 was as follows:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AGE OF ACCOUNTS OF ACCOUNTS OF BALANCES
- --------------- ----------- -----------
<S> <C> <C>
Less than 12 Months................ 6.6% 5.0%
12 to 23 Months.................... 8.9% 9.3%
24 to 35 Months.................... 11.7% 12.4%
36 Months and Greater.............. 72.8% 73.3%
----------- ------------
Total.............................. 100.0% 100.0%
=========== ============
</TABLE>
15
<PAGE> 16
Summary Yield Information. The annualized aggregate monthly yield for the
Discover Card Portfolio is summarized as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED YEAR ENDED DECEMBER 31,
----------------------------------
NOVEMBER 30, 1997 1996 1995 1994
------------------- ------- ---------- -------------
<S> <C> <C> <C> <C>
Aggregate Monthly
Yield(1).. 18.19% 17.72% 16.95% 16.65%
</TABLE>
(1) Monthly Yield is calculated by dividing Monthly Finance Charges billed by
beginning monthly balance. Monthly Finance Charges include periodic
finance charges, cash advance item charges, late fees, and as of March 1,
1996, overlimit fees, but exclude certain other items such as annual
membership fees, if any, which are included in Finance Charge Receivables
and recoveries with respect to charged-off accounts. Aggregate Monthly
Yield is the average of Monthly Yields annualized for each period shown.
Summary Current Delinquency Information. Current delinquency information
as of November 30, 1997 with respect to the Discover Card Portfolio is
summarized as follows:
<TABLE>
<CAPTION>
AGGREGATE
BALANCES PERCENTAGE
PAYMENT STATUS (000'S) OF BALANCES
- -------------- ------------- -----------
<S> <C> <C>
Current................................................................... $25,546,310 85.8%
1 to 29 Days.............................................................. $ 2,194,931 7.4%
30 to 59 Days............................................................. $ 658,518 2.2%
60 to 89 Days............................................................. $ 466,870 1.6%
90 to 119 Days............................................................ $ 353,093 1.2%
120 to 149 Days........................................................... $ 294,001 1.0%
150 to 179 Days........................................................... $ 238,817 0.8%
----------- -----------
Total.................................. $29,752,540 100.0%
=========== ===========
</TABLE>
Summary Historical Delinquency Information. Historical delinquency
information with respect to the Discover Card Portfolio is summarized as
follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
AVERAGE OF ELEVEN MONTHS -------------------------------------------------------------------------------
ENDED NOVEMBER 30, 1997 1996 1995 1994
------------------------ ------------------------ ------------------------- --------------------------
DELINQUENT DELINQUINT DELINQUINT DELINQUINT
AMOUNT AMOUNT AMOUNT AMOUNT
(000'S) PERCENTAGE(1) (000'S) PERCENTAGE(1) (000'S) PERCENTAGE(1) (000'S) PERCENTAGE(1)
---------- ------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-59 Days........ $ 743,464 2.6% $ 680,645 2.7% $ 568,382 2.6% $405,942 2.2%
60-89 Days........ $ 432,410 1.5% $ 361,992 1.4% $ 276,821 1.3% $193,582 1.1%
90-179 Days...... $ 803,204 2.8% $ 593,661 2.3% $ 403,134 1.8% $282,080 1.5%
---------- ---- ---------- ---- ---------- ---- -------- ----
Total....... $1,979,078 6.9% $1,636,298 6.4% $1,248,337 5.7% $881,604 4.8%
========== ==== ========== ==== ========== ==== ======== ====
</TABLE>
For a discussion of economic factors affecting the performance of the
Discover Card Portfolio, including delinquencies, see "Risk Factors Social,
Legal and Economic Factors."
16
<PAGE> 17
(1) The percentages are the result of dividing Delinquent Amount by Average
Receivables Outstanding for the applicable period. Delinquent Amount is
the average of the monthly ending balances of delinquent accounts during
the periods indicated. Average Receivables Outstanding is the average of
the monthly average amount of receivables outstanding during the periods
indicated.
Summary Charge-Off Information. Charge-off information with respect to
the Discover Card Portfolio is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
ELEVEN MONTHS 1996 1995 1994
ENDED ---- ---- ----
NOVEMBER 30, (DOLLARS IN THOUSANDS)
1997
-------------
<S> <C> <C> <C> <C>
Average Receivables
Outstanding(1)............................ $28,403,076 $25,542,718 $22,031,829 $18,464,611
Gross Charge Offs......................... $ 1,891,601 $ 1,458,450 $ 923,836 $ 680,487
Gross Charge-Offs as a Percentage of
Average Receivables Outstanding(2)........ 7.27% 5.71% 4.19% 3.69%
</TABLE>
For a discussion of economic factors affecting the performance of the
Discover Card Portfolio, including charge-offs, see "Risk Factors Social,
Legal and Economic Factors."
_________________
(1) Average Receivables Outstanding is the average of the monthly average
amount of receivables outstanding during the periods indicated.
(2) Recoveries with respect to charged-off Receivables will not be property
of the Trust.
Summary Payment Rate Information(1). The monthly rate of payments in the
Discover Card Portfolio is summarized as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------------
NOVEMBER 30, 1997 1996 1995 1994
----------------- ------ ------ ------
<S> <C> <C> <C> <C>
Average Monthly
Payment Rate(2).......... 14.51% 15.24% 16.20% 16.65%
High Monthly
Payment Rate............. 16.31% 18.08% 18.97% 17.89%
Low Monthly
Payment Rate............. 12.41% 13.33% 13.67% 15.16%
</TABLE>
17
<PAGE> 18
(1) Monthly Payment Rate is calculated by dividing monthly cardmember
remittances by the cardmember receivable balance outstanding as of the
beginning of the month.
(2) Average Monthly Payment Rate for a period is equal to the sum of
individual monthly payment rates for the period divided by the number of
months in the period.
10. GREENWOOD TRUST COMPANY
Delete the text under the heading "Greenwood Trust Company" on page 53 and
54 and substitute the following:
Greenwood is a wholly-owned subsidiary of NOVUS and an indirect
subsidiary of MSDW. Greenwood was acquired by NOVUS in January 1985.
Greenwood was chartered as a banking corporation under the laws of the
State of Delaware in 1911, and its deposits are insured by the FDIC.
Greenwood is not a member of the Federal Reserve System. The executive
office of Greenwood is located at 12 Read's Way, New Castle, Delaware
19720. On March 1, 1993, Sears sold through a primary initial public
offering a minority interest of approximately 20 percent in its
wholly-owned subsidiary DWDC. Sears distributed to Sears shareholders
the balance of its ownership in DWDC in a tax-free spin-off on June 30,
1993. Through the initial public offering and the spin-off of DWDC, all
subsidiaries of DWDC (including Greenwood, DRFG and SRC) are no longer
subsidiaries of Sears. In May 1997, DWDC merged with Morgan Stanley
Group Inc. and changed its name to Morgan Stanley, Dean Witter, Discover
& Co. (now Morgan Stanley Dean Witter & Co.). DRFG believes that the
change in ownership and subsequent merger will not have a material effect
on the Investor Certificates. In addition to the experience obtained by
Greenwood in the bank card business since 1985, a majority of the senior
management of the credit, operations and data processing functions for
the Discover Card at Greenwood and NSI has had extensive experience in
the credit operations of other credit card issuers. NSI performs sales
and marketing activities, provides operational support for the Discover
Card program and maintains merchant relationships.
By virtue of enactment of CEBA, there are certain limitations placed
on Greenwood, including a requirement that Greenwood not engage in
activities in which it was not engaged as of March 5, 1987. Since its
acquisition by NOVUS, as a result of these and earlier limitations,
Greenwood has not engaged in the business of making commercial loans.
See "Risk Factors -- Legislation." However, the portions of CEBA which
limited the growth of the average asset base of Greenwood for each 12
month period ending September 30 to 7% of Greenwood's average asset base
for the preceding 12 month period have been repealed. Greenwood believes
that in light of the programs it has in place, the limitations of CEBA
will not have a material impact on the level of the Receivables or on
Greenwood's ability to service the Receivables.
18
<PAGE> 19
11. THE SELLER
a. Delete the fifth sentence under the subheading "General" on page 54 and
substitute the following:
The Investor Certificates will not be guaranteed by MSDW or any of
its affiliates, including Greenwood and DRFG.
b. Add at the end of the last sentence of the first paragraph under the
subheading "Greenwood" on page 55:
In addition, the Federal Deposit Insurance Corporation, if appointed
as conservator or receiver for Greenwood, has the power under the Federal
Deposit Insurance Act, as amended, to repudiate contracts, including
contracts of Greenwood such as the Pooling and Servicing Agreement. The
Federal Deposit Insurance Act, as amended, provides that a claim for
damages arising from the repudiation of a contract is limited to "actual
direct compensatory damages." In the event the Federal Deposit Insurance
Corporation were to be appointed as conservator or receiver of Greenwood
and were to repudiate the Pooling and Servicing Agreement, then the
amount payable out of available collateral to the Certificateholders
could be lower than the outstanding principal and accrued interest on the
Certificates. In a 1993 case involving the repudiation by the Resolution
Trust Corporation, which has ceased to exist as of December 31, 1995 (the
Federal Deposit Insurance Corporation has taken over its
responsibilities), of certain secured zero-coupon bonds issued by a
savings association, a United States federal district court held that
"actual direct compensatory damages" in the case of a marketable security
meant the market value of the repudiated bonds as of the date of
repudiation.
c. Delete the first sentence of the second paragraph under the subheading
"Greenwood" on page 55 and substitute the following:
DRFG received, on the Closing Date, an opinion of Latham & Watkins, with
respect to Greenwood, concluding on a reasoned basis (although there was
no precedent based directly on similar facts) that subject to certain
facts, assumptions and qualifications specified therein (including matters
set forth under "Certain Legal Matters Relating to the Receivables --
Transfer of Receivables" and "-- Certain UCC Matters"), (i) if the
transfer of Greenwood Receivables to DRFG by Greenwood constitutes an
absolute transfer, then such transfer is a transfer of all right, title
and interest of Greenwood in and to such Greenwood Receivables to DRFG
and (ii) if such transfer is not an absolute transfer, (A) the security
interest created by the Purchase and Contribution Agreement in favor of
DRFG is a valid security interest in the right, title and interest of
Greenwood in and to such Greenwood Receivables and (B) under New York
law, the perfection and priority of a security interest in such Greenwood
Receivables are governed by Delaware law.
19
<PAGE> 20
12. CERTAIN LEGAL MATTERS RELATING TO THE RECEIVABLES
a. Delete the second sentence under the heading "Consumer Protection Laws
and Debtor Relief Laws Applicable to the Receivables" on page 57 and substitute
the following:
Such laws and regulations include the Federal Truth-in-Lending Act and
Fair Credit Billing Act (and the provisions of the Federal Reserve
Board's Regulation Z issued under each of them), Equal Credit Opportunity
Act (and the provisions of the Federal Reserve Board's Regulation B
issued thereunder), Fair Credit Reporting Act and Fair Debt Collection
Practices Act.
b. Delete the carryover paragraph on pages 57-58 and the first two full
paragraphs on page 58 relating to "Consumer Protection Laws and Debtor Relief
Laws Applicable to the Receivables."
13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Delete the text under the heading "Certain Federal Income Tax
Consequences" on pages 58-64 and substitute the following:
GENERAL
The following summary of certain anticipated federal income tax
consequences of the purchase, ownership and disposition of the Investor
Certificates is based on the advice of Latham & Watkins ("Tax Counsel")
as counsel to DRFG. The summary is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), currently
applicable Treasury Regulations and judicial and administrative rulings
and decisions ("Current Law"). There can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and
no ruling from the IRS has been or will be sought. Legislative, judicial
or administrative changes may be forthcoming that could alter or modify
the statements and conclusions set forth herein. Any legislative,
judicial or administrative changes or interpretations may or may not be
retroactive and could affect tax consequences to Investor
Certificateholders.
The summary does not purport to deal with all aspects of federal
income taxation that may affect particular Investor Certificateholders in
light of their individual circumstances, and, except for certain limited
discussions of particular topics, is not intended for Investor
Certificateholders subject to special treatment under the federal income
tax laws (e.g., life insurance companies, tax-exempt organizations,
financial institutions, broker-dealers and investors that have a
functional currency other than the United States dollar or hold their
Investor Certificates as part of a hedge, straddle or
20
<PAGE> 21
conversion transaction). PROSPECTIVE INVESTOR CERTIFICATEHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL, FOREIGN
AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF INVESTOR CERTIFICATES.
TAX TREATMENT OF THE INVESTOR CERTIFICATES AS INDEBTEDNESS
Tax Counsel has advised DRFG that, in their opinion, although the
matter is not free from doubt, under Current Law the Investor
Certificates will be treated as indebtedness for federal income tax
purposes. Such opinion is based, in part, upon (i) the expressed intent
of DRFG and Greenwood to treat the Investor Certificates for federal,
state and local income and franchise tax purposes as indebtedness secured
by the Receivables and other assets held in the Trust, (ii) the
commitment of each Investor Certificateholder, by the acceptance of an
Investor Certificate, similarly to treat the Investor Certificates for
federal, state and local income and franchise tax purposes as
indebtedness, (iii) Tax Counsel's conclusion that the federal income tax
treatment of the Investor Certificates should be determined based on the
economic substance of the arrangement created by the Pooling and
Servicing Agreement and the Purchase and Contribution Agreement and (iv)
Tax Counsel's analysis of such economic substance. There can be no
assurance, however, that the IRS or the courts will agree with the
conclusions of Tax Counsel. In that regard, the Pooling and Servicing
Agreement generally refers to the transfer of the Receivables as a
"sale," and DRFG has informed Tax Counsel (i) that different criteria are
used in determining the non-tax accounting treatment of the transaction
and (ii) that, for regulatory and financial accounting purposes, DRFG
will treat the transfer of the Receivables under the Pooling and
Servicing Agreement and the Purchase and Contribution Agreement as a
transfer of an ownership interest in the Receivables and not as the
creation of a debt obligation. Notwithstanding the foregoing, DRFG and
Greenwood will treat the Investor Certificates as indebtedness for
federal, state and local income and franchise tax purposes and the
Investor Certificateholders, by acceptance of the Investor Certificates,
agree to treat such Investor Certificates as indebtedness for federal,
state and local income and franchise tax purposes.
The above discussion is qualified in its entirety by reference to
the tax opinion that was filed as an exhibit to the Registration
Statement containing the Prospectus to which this Annual Appendix
relates. Except for the discussion in "-- Possible Characterization of
the Investor Certificates," the following discussion of federal income
tax consequences assumes that the Investor Certificates will be treated
as indebtedness for federal income tax purposes.
21
<PAGE> 22
UNITED STATES INVESTOR CERTIFICATEHOLDERS
The rules set forth below apply to Investor Certificateholders who
are "United States Persons." A "United States Person" is (i) a citizen
or resident of the United States, (ii) a corporation or partnership
created or organized in the United States or under the laws of the United
States or of any state, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source or (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United
States persons have the authority to control all substantial decisions of
the trust (or, under certain circumstances, a trust the income of which
is subject to United States federal income taxation regardless of its
source).
Stated Interest on Investor Certificates. Subject to the discussion
below, interest paid on the Investor Certificates will be taxable as
ordinary income when received or accrued by Investor Certificateholders
in accordance with their method of accounting. Generally, interest
received on the Investor Certificates will constitute "investment income"
for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense.
Original Issue Discount. In general, the excess of the stated
redemption price at maturity of the Investor Certificates over their
issue price will constitute original issue discount ("OID"), unless such
excess is within a statutorily-defined de minimis exception.
If the Investor Certificates are issued with OID, Investor
Certificateholders generally will be required to include OID in income
for each accrual period in advance of receipt of the cash representing
such OID. A holder of a debt instrument issued with OID is required to
recognize as ordinary income the amount of OID on the debt instrument as
such discount accrues, in accordance with a constant yield method. Under
Section 1272(a)(6) of the Code, special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of
other obligations securing those debt instruments or, to the extent
provided in Treasury Regulations, by reason of other events. Under these
provisions, the computation of OID (and market discount, see "-- Market
Discount") on such debt instruments must be determined by taking into
account both the prepayment assumptions used in pricing the debt
instrument and the actual prepayment experience. As a result, the amount
of OID on such debt instruments that will accrue in any given accrual
period may either increase or decrease depending upon the actual
prepayment rate. Because no Treasury Regulations have been issued
interpreting Section 1272(a)(6), Investor Certificateholders should
consult their own tax advisors regarding the impact of the OID rules in
the event the Investor Certificates are issued with OID.
Market Discount. Investor Certificateholders should be aware that
the resale of an Investor Certificate may be affected by the market
discount provisions of the Code. These rules generally provide that,
subject to a statutorily-defined de minimis exception,
22
<PAGE> 23
if an Investor Certificateholder acquires an Investor Certificate at a
market discount (i.e., at a price below its stated redemption price at
maturity or its revised issue price if it was issued with OID) and
thereafter recognizes gain upon a disposition of the Investor Certificate
(or disposes of it in certain non-recognition transactions such as a
gift), the lesser of such gain (or appreciation, in the case of an
applicable non-recognition transaction) or the portion of the market
discount that accrued while the Investor Certificate was held by such
Investor Certificateholder will be treated as ordinary interest income at
the time of the disposition. The market discount rules also provide that
an Investor Certificateholder who acquires an Investor Certificate at a
market discount may be required to defer a portion of any interest
expense that otherwise may be deductible on any indebtedness incurred or
maintained to purchase or carry the Investor Certificate until the
Investor Certificateholder disposes of the Investor Certificate in a
taxable transaction.
Principal payments on the Investor Certificates will be made monthly
during the Amortization Period, if any. An Investor Certificateholder
who acquired an Investor Certificate at a market discount would be
required to treat as ordinary interest income the portion of any
principal payment attributable to accrued market discount on such
Investor Certificate.
An Investor Certificateholder who acquired the Investor Certificate
at a market discount may elect to include market discount in income as
the discount accrues, either on a ratable basis or, if elected, on a
constant interest rate basis. The current inclusion election, once made,
applies to all market discount obligations acquired on or after the first
day of the first taxable year to which the election applies, and may not
be revoked without the consent of the IRS. If an Investor
Certificateholder elects to include market discount in income in
accordance with the preceding sentence, the foregoing rules with respect
to the recognition of ordinary income on sales, principal payments and
certain other dispositions of the Investor Certificates and the deferral
of interest deductions on indebtedness related to the Investor
Certificates will not apply.
Amortizable Bond Premium. Generally, if the price or tax basis of
an Investor Certificate held as a capital asset exceeds the sum of all
amounts payable on the Investor Certificate after the acquisition date
(other than payments of qualified stated interest), such excess may
constitute amortizable bond premium that the Investor Certificateholder
may elect to amortize under the constant interest rate method over the
period from the Investor Certificateholder's acquisition date to the
Investor Certificate's maturity date. Treasury Regulations specifically
exclude debt instruments acquired on or after March 2, 1998 that are
subject to Section 1272(a)(6) of the Code from the amortizable bond
premium rules contained in such Regulations. See discussion of Section
1272(a)(6) in "-- Original Issue Discount." Amortizable bond premium
generally will be treated as an offset to interest income on the Investor
Certificate, rather than as a separate interest deduction item subject to
the investment interest limitations of the Code. An Investor
Certificateholder that elects to amortize bond premium must generally
reduce the tax
23
<PAGE> 24
basis in the related Investor Certificate by the amount of bond premium
used to offset interest income. If an Investor Certificate purchased at
a premium is redeemed in full prior to its maturity, an Investor
Certificateholder who has elected to amortize bond premium should be
entitled to a deduction for any remaining unamortized bond premium in the
taxable year of redemption.
Sales of Investor Certificates. In general, an Investor
Certificateholder will recognize gain or loss upon the sale, exchange,
redemption or other taxable disposition of an Investor Certificate
measured by the difference between (i) the amount of cash and the fair
market value of any property received (other than the amount attributable
to, and taxable as, accrued but unpaid interest) and (ii) the Investor
Certificateholder's tax basis in the Investor Certificate (as increased
by any OID or market discount previously included in income by the
Investor Certificateholder and decreased by any deductions previously
allowed for amortizable bond premium and by any payments reflecting
principal or OID received with respect to such Investor Certificate).
Subject to the OID and market discount rules discussed above and to
the one-year holding period requirement for long-term capital gain
treatment, any such gain or loss generally will be long-term capital gain
or loss, provided the Investor Certificate was held as a capital asset.
The maximum federal income tax rate applicable to capital gains and
ordinary income for corporations is 35%. Moreover, capital losses
generally may be used only to offset capital gains. The maximum ordinary
federal income tax rate for individuals, estates and trusts is 36% (for
married individuals filing joint returns with taxable income in excess of
$155,950 ($128,100 for certain unmarried individuals)) whereas the
maximum long-term capital gains rate applicable to the sale of an
Investor Certificate is 20% for such taxpayers who, at the time of such
sale, have held such Investor Certificate for more than 18 months, and
28% for such taxpayers who, at the time of such sale, have held such
Investor Certificate for more than one year but not more than 18 months.
A further 10% surtax will be imposed on ordinary income of individuals
with taxable incomes in excess of $278,450 (for married individuals
filing joint returns and for certain unmarried individuals) and estates
and trusts with taxable incomes in excess of $8,350 (thereby creating a
maximum federal income tax rate for such taxpayers of 39.6%).
FOREIGN INVESTOR CERTIFICATEHOLDERS
Set forth below is a general discussion of the United States federal
income and estate tax consequences of the purchase, ownership, sale or
other disposition of an Investor Certificate by an Investor
Certificateholder that for United States federal income tax purposes, is
(i) a foreign corporation, (ii) a non-resident alien individual, (iii) a
foreign estate or trust or (iv) a foreign partnership, as such terms are
defined in the Code (a "non-U.S. Holder"). Some non-U.S. Holders
(including certain residents of certain
24
<PAGE> 25
United States possessions or territories) may be subject to special rules
not discussed herein.
Interest (including OID, if any) paid to a non-U.S. Holder of
Investor Certificates will not be subject to a required withholding of
United States federal income tax, provided that (i) such interest
payments are effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States and such
non-U.S. Holder provides an appropriate statement to such effect, or
(ii)(a) the holder is not (1) a "10 percent shareholder" of DRFG or
Greenwood or (2) a "controlled foreign corporation" with respect to which
DRFG or Greenwood is a "related person" within the meaning of the Code
and (b) the beneficial owner (and, if relevant, a financial institution
on the beneficial owner's behalf) provides an appropriate statement,
signed under penalty of perjury, certifying that the beneficial owner of
such Investor Certificate is not a United States Person and providing the
beneficial owner's name and address. The statement generally must be
provided in the year a payment occurs or in either of the two preceding
years. For years after 1999, Treasury Regulations specify that the
statement must be made on Form W-8 and provided prior to payment.
A non-U.S. Holder generally will not be subject to United States
federal income tax on gain realized on the disposition of an Investor
Certificate (other than gain attributable to accrued interest or OID,
which is addressed in the preceding paragraph); provided that (i) the
gain is not effectively connected with the conduct of a trade or business
within the United States by the non-U.S. Holder and (ii) in the case of
an individual holder, (A) the non-U.S. Holder is not present in the
United States for 183 days or more in the taxable year of the sale,
exchange or redemption or (B)(1) the non-U.S. Holder does not have a "tax
home" in the United States and (2) the gain is not attributable to an
office or other fixed place of business maintained in the United States
by the non-U.S. Holder.
If the interest or gain on an Investor Certificate held by a
non-U.S. Holder is effectively connected with the conduct of a trade or
business within the United States by the non-U.S. Holder, then the
non-U.S. Holder (although exempt from the withholding of tax previously
discussed if the non-U.S. Holder provides an appropriate statement)
generally will be subject to United States federal income tax on the
interest (including OID, if any) or gain at regular federal income tax
rates in a similar fashion to a United States Person. See "-- United
States Investor Certificateholders." In addition, if the non-U.S. Holder
is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its "effectively connected earnings and profits" within the
meaning of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty.
An Investor Certificate held by an individual who at the time of
death is a non-U.S. Holder will not be subject to United States federal
estate tax as a result of such
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<PAGE> 26
individual's death if, immediately before death, (i) the individual was
not a "10 percent shareholder" of DRFG or Greenwood and (ii) interest on
such Investor Certificate was not effectively connected with the conduct
of a trade or business within the United States by the individual.
THE FOREGOING DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS IS NECESSARILY
INCOMPLETE. NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE APPLICATION OF THE FOREGOING MATTERS TO THEM.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting requirements apply to certain payments of
principal of and interest on (and the amount of OID, if any, accrued on)
an obligation, and to proceeds of certain sales of an obligation before
maturity, to certain nonexempt Investor Certificateholders who are United
States Persons. Payments to certain entities, including, but not limited
to, corporations and financial institutions, are exempt from information
reporting. In addition, a backup withholding tax may also apply with
respect to such amounts if such Investor Certificateholders fail to
provide correct taxpayer identification numbers and other information.
The backup withholding tax rate is 31%. DRFG, Greenwood, or a paying
agent or a broker, as the case may be, will be required to withhold from
any payment that is subject to backup withholding unless the Investor
Certificateholder has provided the required certification in the manner
prescribed in applicable Treasury Regulations.
In the case of payments of principal of, and interest on (and the
amount of OID, if any, accrued on) Investor Certificates by DRFG,
Greenwood or their paying agents to non-U.S. Holders, Treasury
Regulations provide that backup withholding and information reporting
will not apply to payments with respect to which either requisite
certification has been received or an exemption has otherwise been
established (provided that neither DRFG nor Greenwood nor their paying
agents has actual knowledge that the holder is a United States Person or
that the conditions of any other exemption are not in fact satisfied).
Payments of the proceeds of the sale of an Investor Certificate to or
through a foreign office of a United States broker or foreign brokers
with certain types of relationships to the United States, however, are
subject to certain information reporting requirements, unless the payee
is an exempt recipient or such broker has evidence in its records that
the payee is not a United States Person and no actual knowledge that such
evidence is false and certain other conditions are met. After 1999,
unless exempted from information reporting, such payments may be subject
to backup withholding. Payments of the proceeds of a sale to or through
the United States office of a broker will be subject to information
reporting and backup withholding unless the payee makes appropriate
certifications (and no agent of the broker who is responsible for
receiving or reviewing
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such statement has actual knowledge that it is incorrect) or an exemption
is otherwise established.
Any amounts withheld under the backup withholding rules from a
payment to an Investor Certificateholder will be allowed as a refund or a
credit against such Investor Certificateholder's United States federal
income tax.
Recently, the Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed
above. In general, the final regulations do not significantly alter the
substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance
standards. Special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting
on behalf of beneficial owners. The final regulations are generally
effective for payments made after December 31, 1999, subject to certain
transition rules. Non-U.S. Holders are urged to consult their own tax
advisors with respect to these final regulations.
POSSIBLE CHARACTERIZATION OF THE INVESTOR CERTIFICATES
The foregoing discussion assumes that the Investor Certificates will
be treated as indebtedness for federal income tax purposes. However,
although Tax Counsel has opined to such effect, the matter is not free
from doubt, and there can be no assurance that the IRS or the courts will
agree with Tax Counsel's opinion. If the IRS were to contend
successfully that the Investor Certificates are not indebtedness for
federal income tax purposes, it could find that the arrangement created
by the Pooling and Servicing Agreement and the Purchase and Contribution
Agreement constitutes a partnership which could be treated as a "publicly
traded partnership" taxable as a corporation.
If the Investor Certificates were treated as interests in a
partnership, the partnership in all likelihood would be treated as a
"publicly traded partnership." If the partnership were nevertheless not
taxable as a corporation (for example, because of an exception for a
"publicly traded partnership" whose income is interest that is not
derived in the conduct of a financial business), such partnership would
not be subject to federal income tax. Rather, the Investor
Certificateholders would be required to include in income their share of
the income and deductions generated by the assets of the Trust, as
determined under partnership tax accounting rules. In such event, the
amount, timing and character of the income required to be recognized by
an Investor Certificateholder could differ materially from the amount,
timing and character thereof if the Investor Certificates were
characterized as indebtedness. It also is possible that such a
partnership could be subject to tax in certain states where the
partnership is considered to be engaged in business, and that the
Investor Certificateholders, as partners in such a partnership, could be
taxed on their share of the partnership's income in such states.
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<PAGE> 28
In addition, if such a partnership is considered to be engaged in a
trade or business within the United States, the partnership would be
subject to a withholding tax on distributions to (or, at its election,
income allocable to) non-U.S. Holders, and each such non-U.S. Holder
would be credited for such non-U.S. Holder's share of the withholding tax
paid by the partnership. Moreover, the non-U.S. Holder generally would
be subject to United States federal income tax at regular federal income
tax rates, and possibly a branch profits tax (in the case of a corporate
non-U.S. Holder), as previously described. See "-- Foreign Investor
Certificateholders." Further, even if the partnership is not considered
to be engaged in a trade or business within the United States, it appears
that partnership withholding will be required in the case of any such
non-U.S. Holder that is engaged in a trade or business within the United
States to which the Investor Certificate income is effectively connected.
Alternatively, although there may be arguments to the contrary, it
appears that if such a partnership is not considered to be engaged in a
trade or business within the United States and if income with respect to
an Investor Certificate is not otherwise effectively connected with the
conduct of a trade or business within the United States by a non-U.S.
Holder, the non-U.S. Holder would be subject to United States federal
income tax and withholding at a rate of 30% (unless reduced by an
applicable treaty) on such non-U.S. Holder's distributive share of the
partnership's interest income.
If the Investor Certificates were treated as interests in a
"publicly traded partnership" taxable as a corporation, the income from
the assets of the Trust would be subject to federal income tax and tax
imposed by certain states where the entity would be considered to have
operations at corporate rates, which would reduce the amounts available
for distribution to the Investor Certificateholders. See "Certain State
Tax Consequences." Under such circumstances, the Investor Certificates
may be treated as debt of an entity taxable as a corporation or,
alternatively, as equity of such an entity in which latter case interest
payments to Investor Certificateholders could be treated as dividends
and, if made to non-U.S. Holders, could be subject to United States
federal income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty).
Finally, the IRS might contend that even though the Class A
Certificates are properly classified as debt obligations for federal
income tax purposes, the Class B Certificates are not properly classified
as such. Under this approach, the Class B Certificates might be viewed
as equity interests in an entity (such as Greenwood or DRFG or a joint
venture consisting of DRFG, Greenwood and the Class B
Certificateholders), with the Class A Certificates treated as debt
obligations of such entity. If such an entity were characterized as a
partnership not taxable as a corporation, the entity would not be subject
to federal income tax, although the Class B Certificateholders would be
subject to the tax consequences previously described with respect to
interests in a partnership that is not taxable as a corporation.
Alternatively, if such an entity were characterized as a "publicly traded
partnership" taxable as a
28
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corporation, the tax liability on the income of the entity might, in
certain circumstances, reduce distributions on both the Class A
Certificates and the Class B Certificates, and the Class B
Certificateholders would be subject to the tax consequences previously
described with respect to interests in a "publicly traded partnership"
taxable as a corporation. In addition, any non-U.S. Holder of a Class A
Certificate who is the actual or constructive owner of 10% or more of the
outstanding principal amount of the Class B Certificates may be treated
as a "10 percent shareholder." See "-- Foreign Investor
Certificateholders."
Based on Tax Counsel's advice as to the likely treatment of the
Investor Certificates for federal income tax purposes, DRFG, Greenwood
and the Trust will not attempt to cause the arrangement created by the
Pooling and Servicing Agreement and the Purchase and Contribution
Agreement to comply with the federal or state income tax reporting
requirements applicable to partnerships or corporations. If such
arrangement were later held to constitute a partnership or corporation,
the manner of bringing it into compliance with such requirements is
unclear.
Prospective Investor Certificateholders should consult their own tax
advisors as to the risk that the Investor Certificates will not be
treated as indebtedness, and the possible tax consequences of potential
alternative treatments.
14. CERTAIN STATE TAX CONSEQUENCES
Delete the text under the heading "Certain State Tax Consequences" on
pages 64-65 and substitute the following:
The following summary of certain anticipated state tax consequences
with respect to the Investor Certificates is based on the advice of Tax
Counsel as counsel to DRFG. The summary is based upon currently
applicable statutes, regulations and judicial and administrative rulings
and decisions of certain states. There can be no assurance that the
taxing authorities of such states will not take a contrary view, and no
ruling therefrom has been or will be sought. Legislative, judicial or
administrative changes may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Investor Certificateholders. Except as set forth below,
this discussion of state tax consequences assumes that the Investor
Certificates will be treated as indebtedness for federal tax purposes.
State tax consequences to each Investor Certificateholder will
depend upon the provisions of the state tax laws to which the Investor
Certificateholder is subject. Most states modify or adjust the
taxpayer's federal taxable income to arrive at the amount of income
potentially subject to state tax. Resident individuals usually pay state
tax on
29
<PAGE> 30
100% of such state-modified income, while corporations and other
taxpayers generally pay state tax only on that portion of state-modified
income assigned to the taxing state under the state's own apportionment
and allocation rules. Because each state's tax laws vary, it is
impossible to predict the tax consequences to the Investor
Certificateholders in all of the state taxing jurisdictions in which they
are already subject to tax.
Delaware is the location of DRFG's and Greenwood's headquarters,
where Greenwood originates and owns the Accounts and services the
Receivables pursuant to the Pooling and Servicing Agreement. Tax Counsel
has advised DRFG , that, in their opinion, although the matter is not
free from doubt, the Investor Certificates are treated as indebtedness
for purposes of the Delaware income tax. Accordingly, although the
matter is not free from doubt, if the Investor Certificates are treated
as indebtedness in Delaware, Investor Certificateholders not otherwise
subject to taxation in Delaware will not become subject to the Delaware
income tax solely because of their ownership of the Investor
Certificates.
Generally, an Investor Certificateholder is required to pay, in
states in which such an Investor Certificateholder already is subject to
state tax, additional state tax as a result of interest earned on such
Investor Certificateholder's investment in the Investor Certificates.
Moreover, a state could claim that the Trust has undertaken activities
therein and is subject to taxation by that state. Were any state to make
and sustain that claim, the treatment of the Investor Certificates for
purposes of such state's tax laws would be determined thereunder, and
there can be no assurance that the Investor Certificates would be treated
as indebtedness of Greenwood and DRFG for purposes of such state
taxation.
If such Investor Certificates were treated as interests in a
partnership or a corporation, the state tax consequences to the Investor
Certificateholders could be materially different, especially in states
which may be considered to have a business connection with the
Receivables. See "Certain Federal Income Tax Consequences -- Possible
Characterization of the Investor Certificates."
THE FOREGOING DESCRIPTION OF THE POTENTIAL STATE TAX CONSEQUENCES IS
INCOMPLETE. INVESTOR CERTIFICATEHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE FOREGOING MATTERS TO
THEM.
15. ERISA CONSIDERATIONS
Delete the last three paragraphs under the heading "Class A Certificates"
on pages 66-67 and substitute the following:
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<PAGE> 31
If the Class A Certificates were deemed to be an extension of credit
for ERISA purposes, the purchase of the Class A Certificates by a Plan
with respect to which DRFG or one of its affiliates is a "party in
interest" or "disqualified person" might be considered a prohibited
extension of credit under Section 406 of ERISA and Section 4975 of the
Code unless an exemption is applicable. There are at least four
prohibited transaction class exemptions issued by the DOL that might
apply, depending in part on who decided to acquire the Class A
Certificates for the Plan: DOL Prohibited Transaction Exemption ("PTE")
84-14 (Class Exemption for Plan Asset Transactions determined by
Independent Qualified Professional Asset Managers); PTE 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment
Funds); PTE 90-1 (Class Exemption for Certain Transactions Involving
Insurance Company Pooled Separate Accounts); and PTE 96-23 (Class
Exemption for Plan Asset Transactions Determined by In-House Asset
Managers).
Moreover, whether the Class A Certificates are debt or equity for
ERISA purposes, a possible violation of the prohibited transaction rules
could occur if the Class A Certificates were purchased during the
offering with assets of a Plan if Greenwood, DRFG, the Trustee, any
Underwriter or any of their affiliates were a fiduciary with respect to
such Plan. Under ERISA and the Code, a person is a "fiduciary" with
respect to a Plan to the extent (i) he or she exercises any discretionary
authority or discretionary control respecting management of such Plan or
exercises any authority or control respecting management or disposition
of its assets, (ii) he or she renders investment advice for a fee or
other compensation, direct or indirect, with respect to any moneys or
other property of such Plan, or has any authority or responsibility to do
so or (iii) he or she has any discretionary authority or discretionary
responsibility in the administration of such Plan. Accordingly, the
fiduciaries of any Plan should not purchase the Class A Certificates with
assets of any Plan if Greenwood, DRFG, the Trustee, the Underwriters or
any of their affiliates is a fiduciary with respect to the Plan.
In light of the foregoing, fiduciaries of Plans considering the
purchase of the Class A Certificates should consult their own tax or
other appropriate counsel regarding the application of ERISA and the Code
to their purchase of the Class A Certificates.
In particular, insurance companies considering the purchase of Class
A Certificates should consult their own benefits counsel or other
appropriate counsel with respect to the United States Supreme Court's
decision in John Hancock Mutual Life Insurance Co. v. Harris Trust &
Savings Bank, 114 S. Ct. 517 (1993) ("John Hancock"), DOL PTE 95-60
(Class Exemption for Certain Transactions Involving Insurance Company
General Accounts) and Section 401(c) of ERISA. In John Hancock, the
Supreme Court held that the assets held in an insurance company's general
account may be deemed to be "plan assets" under certain circumstances.
Subject to numerous conditions and limitations, PTE 95-60 effectively
reverses this portion of the holding in John Hancock. Section 401(c) of
ERISA was added by the Small Business Job
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<PAGE> 32
Protection Act of 1996 and requires the Secretary of Labor to issue final
regulations by December 31, 1997 which are to provide guidance for the
purpose of determining, in cases where an insurer issues one or more
policies (supported by the assets of the insurer's general account) to or
for the benefit of an employee benefit plan, which assets of such insurer
(other than assets held in a separate account) constitute "plan assets"
for the purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Code. Such regulations shall only apply with respect
to policies which are issued by an insurer on or before December 31,
1998, to or for the benefit of an employee benefit plan which is
supported by the assets of such insurer's general account. With respect
to policies issued on or before December 31, 1998, such regulations shall
take effect at the end of the 18-month period following the date on which
such regulations become final. Section 401(c) also provides that no
person will be subject to liability under Section 4975 of the Code and
the fiduciary responsibility provisions of ERISA on the basis of a claim
that the assets of an insurer (other than assets held in a separate
account) are "plan assets," for conduct occurring before the date which
is 18 months following the date the final regulations become final. On
December 22, 1997, the DOL issued proposed regulations under Section
401(c) of ERISA. 29 CFR 2550.401c-1.
Accordingly, investors should analyze whether John Hancock, PTE
95-60, Section 401(c) of ERISA and any regulations issued pursuant to
Section 401(c) of ERISA may have an impact with respect to their purchase
of Class A Certificates.
16. AVAILABLE INFORMATION
Delete the text under the heading "Available Information" on page 67 of
the Prospectus and substitute the following:
The Trust is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance
therewith, DRFG, on behalf of the Trust, will file reports and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports filed by DRFG on behalf of the Trust are
available for inspection without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York,
New York 10048; and the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports and other documents may also be obtained from the
web site that the Commission maintains at http://www.sec.gov.
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17. GLOSSARY OF TERMS
a. Delete the definition of "Charged-Off Amount" on page 70 of the
Prospectus and substitute the following:
"Charged-Off Amount" will mean, with respect to any Distribution
Date, the aggregate amount of Receivables in Accounts which become
Charged-Off Accounts in the related Due Period, less (i) the cumulative,
uncollected amount previously billed by the Servicer to Accounts that
became Charged-Off Accounts during the related Due Period with respect to
finance charges, cash advance fees, annual membership fees, fees for
transactions that exceed the credit limit on the Account, late payment
charges and any other type of charges that the Servicer has designated as
"Finance Charge Receivables" with respect to Accounts that are not
Charged-Off Accounts and (ii) the full amount of any such Receivables
which have been repurchased by Greenwood.
b. Delete the definition of "Finance Charge Receivables" on page 74 of the
Prospectus and substitute the following:
"Finance Charge Receivables" will mean with respect to any Account
for any Due Period the net amount billed by the Servicer during such Due
Period as periodic finance charges on such Account and cash advance fees,
annual membership fees, fees for transactions that exceed the credit
limit on such Account, late payment charges billed during such Due Period
to such Account and any other charge that the Servicer may designate as
"Finance Charge Receivables" from time to time (provided that the
Servicer shall not designate amounts owing for the payment of goods and
services or cash advances as "Finance Charge Receivables"), less, in the
event that such Account becomes a Charged-Off Account during such Due
Period, the cumulative, uncollected amount previously billed by the
Servicer to such Account as periodic finance charges, cash advance fees,
annual membership fees, fees for transactions that exceed the credit
limit on such Account, late payment charges and any other type of charges
that the Servicer has designated as "Finance Charge Receivables" with
respect to Accounts that are not Charged-Off Accounts; provided, however,
in the event any Account that is included in the Accounts as of the
Cut-Off Date is not selected before the beginning of the Due Period next
preceding the Due Period related to the first Distribution Date, the
Servicer may utilize a reasonable method of estimation to determine the
amount of the Finance Charge Receivables with respect to such Account for
the period beginning on the first day of such next preceding Due Period
and ending on the date on which such Account is selected.
33
