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FILED PURSUANT TO RULE 424(b)(3)
OF THE SECURITIES ACT OF 1933
REGISTRATION NO. 33-71502
ANNUAL APPENDIX
ANNUAL APPENDIX DATED
MARCH 15, 1999 TO PROSPECTUS
DATED NOVEMBER 19, 1993, AS
SUPPLEMENTED THROUGH FEBRUARY 16, 1999
Discover(R) Card Master Trust I, Series 1993-2
5.40% Class A Credit Card Pass-Through Certificates
5.75% Class B Credit Card Pass-Through Certificates
Greenwood Trust Company
Master Servicer, Servicer and Seller
The following updates the prospectus dated November 19, 1993, as
supplemented (the "prospectus"), used by Dean Witter Reynolds Inc. ("DWR"),
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,
MS&Co., or MSIL acts as principal.
INVESTING IN THE INVESTOR CERTIFICATES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8. WE REFER IN THE PROSPECTUS TO "SPECIAL
CONSIDERATIONS"; PLEASE NOTE THAT THESE REFERENCES SHOULD BE TO "RISK FACTORS."
1. GENERAL
Where we refer in the prospectus to Discover Card Services, Inc.
("DCSI"), please note that DCSI has changed its name to Discover Financial
Services, Inc. ("DFS").
Where we refer in the prospectus to the Trustee, we mean U.S. Bank
National Association (formerly First Bank National Association, successor
trustee to Bank of America Illinois, formerly Continental Bank, National
Association), its successors and assigns.
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 Trust Company, 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., and MSIL are wholly owned subsidiaries of MSDW. DWR, MS
& Co., MSIL and other affiliates of Greenwood may use the prospectus in
connection with offers and sales of the securities described in the prospectus
in the course of their businesses as broker-dealers. DWR, MS & Co., MSIL and
these other affiliates may act as principal or agent in these transactions. If
they sell these securities, they will sell them at varying prices related to
prevailing market prices at the time of sale or otherwise. None of DWR, MS &
Co., MSIL or
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any other affiliate is obligated to make a market and each may discontinue any
market-making activities at any time without notice.
The Trust currently has outstanding twenty-five series of Investor
Certificates in Group One and one series of Investor Certificates in Group Two.
"Annex A -- Other Series" summarizes the terms of these series.
2. REPORTS TO INVESTOR CERTIFICATEHOLDERS
Delete the first sentence under the heading "Reports to Investor
Certificateholders" on page 3 of the prospectus and replace with the following:
You may obtain monthly and annual reports containing
information about the Trust, prepared by the Master Servicer, free of
charge by calling 302-323-7434.
3. RISK FACTORS
a. Delete the text on pages 8-10 relating to "Consumer Protection Laws
and Regulations" and substitute the following:
Consumer Protection Laws and Regulations. Greenwood must
comply with federal and state consumer protection laws and regulations
in connection with making and enforcing consumer loans (such as credit
card loans), including the loans in the Trust. These laws and
regulations could adversely affect Greenwood's ability to collect on
the receivables in the Trust or to maintain previous levels of monthly
periodic finance charges. If Greenwood does not comply with these laws
and regulations, it may not be able to collect the receivables. (These
laws and regulations will also apply to any other servicer of the
receivables, with the same possible effects.) Greenwood has agreed in
the Pooling and Servicing Agreement that if:
o it has not complied in all material respects with the
legal requirements that applied to its creation of a
receivable included in the Trust,
o it does not cure its noncompliance in a specified
period of time, and
o the noncompliance has a material adverse effect on
the Trust's interest in all of the receivables in the
Trust,
then Greenwood will purchase all receivables in the affected accounts.
See "Description of the Investor Certificates - Repurchase of Specified
Receivables." Greenwood does not anticipate that the Trustee will
examine the receivables or the records relating to the receivables to
determine whether they have legal defects (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
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Receivables. Greenwood cannot assure you, however, that these
proceedings will not have such a material adverse effect.
b. Delete the first two full paragraphs on page 10 and substitute the
following:
Legislation. The Competitive Equality Banking Act of 1987
("CEBA") contains provisions that limit the ability of nonbanking
companies, such as MSDW and NOVUS Credit Services Inc. ("NOVUS"), to
own banks. However, CEBA 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 CEBA. 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
"The Seller -- Greenwood."
c. Delete the text on pages 10-11 under the heading "Competition in the
Credit Card Industry" 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 financial incentives of credit
cards such as annual fees, finance charges, rebates and other
enhancement features. The market includes (a) bank-issued credit cards,
including "co-branded" cards issued by banks in cooperation with
industrial, retail or other companies and "affinity" cards issued by
banks in cooperation with organizations such as universities and
professional organizations, and (b) charge cards issued by travel and
entertainment companies. The vast majority of the bank-issued credit
cards (the so-called "general purpose" 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 30
years. Cards bearing their service marks are accepted worldwide by
merchants of goods and services and recognized by consumers and the
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), and
affinity cards, which give cardholders the opportunity to support and
affiliate with the affinity partner's organization and often provide
other benefits, both currently represent a large segment of the
bank-issued credit card market. American Express Company, a card issuer
since 1958, issues the majority of travel and entertainment cards.
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. Greenwood introduced the Discover Card nationwide in
1986; the Discover Card competes with general purpose credit cards
issued by other
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banks and with travel and entertainment cards. In late December 1998,
Greenwood introduced the Discover Platinum Card to compete with gold,
platinum and other premium credit, travel and entertainment cards of
other issuers. Currently, Greenwood is the only issuer of the Discover
Card. Greenwood has also issued, and may from time to time introduce,
additional general purpose credit cards; the Discover Card portfolio,
however, does not include the accounts associated with these cards.
Many bank credit card issuers have instituted balance transfer
programs. Generally, under these transfer programs, the issuers offer a
favorable annual percentage rate or other financial incentives for a
specified length of time on any portion of account balances transferred
from outstanding account balances maintained on another credit card.
The annual percentage rates for balance transfers often are more
favorable to cardholders than the annual rates for account balances
arising from purchases or cash advances.
Competition in the credit card industry affects Greenwood's
ability to obtain applicants for Discover Card accounts, to encourage
cardmembers to use accounts and to persuade service establishments to
accept the Discover Card. If Greenwood does not compete successfully in
these areas, the level of receivables in the Trust and in the Discover
Card portfolio may decline. If the level of receivables in the Trust
declines, and Greenwood cannot add enough receivables from other
accounts (or interests in other pools of credit card receivables) to
maintain the minimum levels of receivables required by the Pooling and
Servicing Agreement, an Amortization Event may occur 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
marketplace. For example, Greenwood issues the Private Issue(R) Card
and certain co-branded and affinity credit cards, and expects that from
time to time Greenwood or other MSDW subsidiaries will introduce
additional general purpose credit card products 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 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, it cannot predict
the effect that these programs will have on the Discover Card
portfolio.
d. Delete the text on pages 11-12 under the heading "Ability to Change
Terms of the Accounts" and substitute the following:
Greenwood May Change Terms of the Accounts. Pursuant to the
Pooling and Servicing Agreement, Greenwood does not transfer accounts
to the Trust, but only the receivables in the accounts. As owner of any
account, Greenwood has the right to determine the rate for periodic
finance charges, to alter the account's minimum required monthly
payment, to change the account's credit limit and to change various
other account terms. If periodic finance charges or other fees
decrease, the Trust's finance charge collections and the effective
yield on the receivables could also decrease. This
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decrease could cause an Amortization Event to occur; investors would
also have less protection against shortfalls in interest and
charged-off receivables. In addition, if Greenwood increases credit
limits on accounts, charged-off amounts might increase and the levels
of receivables in the Trust and in the Discover Card portfolio might
decrease. If the level of receivables in the Trust declines, and
Greenwood cannot add enough receivables from other accounts (or
interests in other pools of credit card receivables) to maintain the
required minimum levels of receivables, an Amortization Event may
occur. The newly introduced Discover Platinum Card offers cardmembers
credit limits that may be substantially higher, and imposes periodic
finance charges that are generally lower, than those available with a
classic Discover Card. Although Greenwood anticipates that the
introduction of the Discover Platinum Card will have a positive impact
on the number of Discover Card accounts, the size of revolving balances
and cardmember loyalty, there can be no assurance that the higher
credit limits and lower periodic finance charges of the Discover
Platinum Card will not have the effects set forth above in this
paragraph. 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 Greenwood
must administer, process and enforce the Accounts in accordance with
its customary and usual servicing procedures for servicing comparable
credit accounts. It must also act in accordance with its Credit
Guidelines. Greenwood has also agreed not to change the terms governing
an Account unless it also changes the terms of its other accounts in
the Discover Card portfolio of the same general type and as to which
the cardholders reside in a particular affected state or similar
jurisdiction. However, changes to account terms may not affect Accounts
in the Trust to the same degree as they affect accounts in the Discover
Card portfolio as a whole. Except as described in this paragraph, the
Pooling and Servicing Agreement does not restrict Greenwood's ability
to change the terms of accounts or receivables. Greenwood may decide,
because of changes in the marketplace or applicable laws, or as a
prudent business practice, to change the terms of some or all of its
Discover Card accounts. (Sellers other than Greenwood will be able to
change account terms in the same circumstances and subject to the same
limitations as Greenwood.)
e. Delete the third full paragraph on page 12 regarding "Basis Risk."
4. THE DISCOVER CARD BUSINESS
Delete the text under the heading "The Discover Card Business" on pages
15-18 and substitute the following:
GENERAL
Greenwood has conveyed "Receivables" to the Trust pursuant to
the Pooling and Servicing Agreement. These Receivables 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 co-branded and affinity cards. In this annual appendix,
we present information about both (1) the Discover Card portfolio
generally (in which case we refer to "receivables" and "the accounts"
in which they arise), and (2) the pool of Receivables
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that Greenwood has conveyed to the Trust (in which case we refer to the
"Receivables" and the "Accounts" in which they arise). When we refer to
the Discover Card in this section entitled "The Discover Card Business"
we are referring to the "classic" Discover Card and the Discover
Platinum Card, both of which are issued by Greenwood. In addition,
except where we specifically refer to classic Discover Card accounts or
Discover Platinum Card accounts, references to "Discover Card accounts"
include both of these types of accounts. With the exception of the
small number of Discover Card Corporate Cards issued by an 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 cards.
Greenwood first issued the classic Discover Card in regional
pilot markets in September 1985, and began distributing the Discover
Card nationally in March 1986. In early January 1999, Greenwood began
issuing the "Discover Platinum Card," a Discover Card with additional
features and benefits. The Discover Card gives cardmembers access to a
revolving line of credit. Each cardmember can use his or her card to
purchase merchandise and services from participating service
establishments. Holders of the Discover Card can also obtain cash
advances at automated teller machines and at certain other locations
throughout the United States. Cardmembers can also obtain cash advances
by writing checks against their accounts. The number of service
establishments that accept the Discover Card has continued to increase.
There are currently over three million merchants and cash advance
locations that accept the Discover Card. As of November 30, 1998, there
were 33.6 million Discover Card accounts with 42.0 million cardmembers.
Cardmembers can only use their Discover Cards for personal, family or
household purposes because of banking statutes that apply to Greenwood.
See "The Seller -- Greenwood."
Cardmembers are generally subject to account terms and
conditions that are uniform from state to state. See "The Accounts -
Billing and Payments." In all cases, the "Cardmember Agreement"
governing the terms and conditions of the account permits Greenwood to
change the credit terms, including the rate of the periodic finance
charge and the fees imposed on accounts, upon 15 days' prior notice to
cardmembers. Greenwood assigns each Discover Card account a credit
limit when it opens the account. After the account is opened, Greenwood
may increase or decrease the credit limit on the account, at
Greenwood's discretion, at any time. The credit limits on classic
Discover Card accounts generally range from $1,000 to $9,000, although
on a case-by-case basis Greenwood will consider authorizing higher or
lower limits. The credit limits on Discover Platinum Card accounts are
a minimum of $5,000 and can range up to $100,000. Currently, Greenwood
will not grant cash advances that exceed, in the aggregate, an amount
equal to 50% of the cardmember's credit limit.
Greenwood offers various features and services with the
Discover Card accounts. One feature 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.
Greenwood remits this amount to cardmembers in the form of a check or a
credit to the cardmember's account, or by giving the cardmember an
option to exchange the Cashback Bonus amount for merchandise. No such
amounts will be paid from the
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property of the Trust. Greenwood offers cardmembers holding the
Discover Platinum Card additional features and services. These include
the ability of cardmembers to double their Cashback Bonus if the bonus
is redeemed for merchandise or services with selected merchants, and to
obtain car rental insurance coverage and higher travel accident
insurance coverage. We also describe certain other features of the
Discover Platinum Card elsewhere in "The Discover Card Business"
section and in "The Accounts" section below.
Currently, Greenwood applies a variable rate of periodic
finance charges to classic Discover Card account balances (except in
certain limited circumstances). This rate is based on the prevailing
prime rate plus a margin, and is also affected by the amount of the
cardmember's purchases, and the cardmember's payment history. Greenwood
has notified cardmembers that, effective with billing cycles beginning
in March 1999, it will begin applying a fixed instead of a variable
rate of periodic finance charges to purchases of merchandise and
services. Based on the variable rate that applies to the account at the
end of the account's billing cycle in March 1999, Greenwood will assign
a corresponding fixed rate to the account. Greenwood will continue to
apply a variable rate of periodic finance charges to cash advances,
with a minimum rate of 20.99%. 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 FDIC. To differentiate the Discover
Card in the marketplace, and to increase accounts, balances and
cardmember loyalty, Greenwood from time to time tests and implements
new offers, promotions and features of the Discover Card. The recently
introduced Discover Platinum Card is an example of this.
Greenwood, either through its processing arrangements with its
affiliate, DFS, 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 soliciting new accounts, processing
applications, issuing new accounts, authorizing and processing
transactions, billing cardmembers, processing payments, providing
cardmember service and collecting delinquent accounts. Greenwood and
DFS maintain multiple operations centers across the country for
servicing cardmembers. DFS also maintains an additional operations
center to process accounts that Greenwood has charged off as
uncollectible.
DFS has established arrangements with service
establishments to accept the Discover Card for cash advances and as the
means of payment for merchandise and services. Greenwood contracts with
DFS to have cards issued by Greenwood (including the Discover Card)
accepted at those establishments. Greenwood's ability to generate new
receivables requires locations where cardmembers can use their Discover
Cards. DFS employs a national sales and service force to maintain and
increase the size of its service establishment base. DFS also maintains
additional operations centers that 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
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clubs, and many leading airlines, car rental companies, hotels,
petroleum companies and mail order companies as well as Internet
merchandise and service providers.
CREDIT-GRANTING PROCEDURES
Greenwood solicits accounts for the Discover Card portfolio by
various techniques including (a) by "preselected" direct mail or
telemarketing, (b) by "take-one" applications, distributed in many
service establishments that accept the Discover Card, and (c) with
various other programs targeting specific segments of the population.
Greenwood also uses general broadcast and print media
advertising to support these solicitations. All accounts undergo credit
review to establish that the cardmembers meet standards of stability
and ability and willingness to pay. Greenwood implements the same
credit review process for applications to open both classic Discover
Card accounts and Discover Platinum Card accounts. Potential applicants
who are sent preselected solicitations have met certain credit criteria
relating to their previous payment patterns and longevity of account
relationships with other credit grantors. Since September 1987,
Greenwood has pre-screened all lists through 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 criteria supplied by Greenwood that are
intended to provide a general indication, based on available
information, of the stability and the willingness and ability of these
persons to repay their obligations. The credit bureaus return to
Greenwood only the names of those persons meeting these criteria.
Greenwood also subsequently screens the applicants who respond to these
preselected solicitations when it receives their completed
applications, to ensure that these individuals continue to meet
selection and credit criteria. Greenwood evaluates applications that
are not preselected by using a credit-scoring system (a statistical
evaluation model that assigns point values to credit information
regarding applicants). The credit-scoring system used by Greenwood is
based on information reported by cardmembers on their applications and
by the credit bureaus. Greenwood uses information from both of these
sources to establish credit-worthiness. Certain applications not
approved under the credit-scoring systems are reviewed by credit
analysts. If a credit analyst recommends that any of these applications
be approved, senior bank review analysts in Greenwood's main office in
New Castle, Delaware, review and may approve them.
As owner of the Discover Card accounts, Greenwood has the
right to change its credit-scoring criteria and credit-worthiness
criteria. Greenwood regularly reviews and modifies its application
procedures and credit-scoring system to reflect Greenwood's actual
credit experience with Discover Card account applicants and cardmembers
as that historical information becomes available. Greenwood believes
that refinements of these procedures and system since the inception of
the Discover Card program have helped its analysis and management of
credit losses. However, Greenwood cannot assure you that these
refinements will prevent 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 in the Discover
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Card portfolio and the Receivables in the Trust. If there is a decrease
in the level of Receivables in the Trust, and if Greenwood does not add
additional accounts to the Trust, an Amortization Event could result,
causing the Trust to begin to repay the principal of the Investor
Certificates sooner than expected. An increase in the amount of
Receivables charged-off as uncollectible, without an offsetting
increase in Finance Charge Receivables, could also cause an
Amortization Event, and cause the Trust to begin to repay the principal
of the Investor Certificates sooner than expected.
COLLECTION EFFORTS
Efforts to collect past-due Discover Card account receivables
are made primarily by collections personnel of DFS or Greenwood. Under
current practice, Greenwood includes a request for payment of past-due
amounts on the monthly billing statement of all accounts with these
amounts. Cardmembers owing past-due amounts also receive a written
notice of late fee charges on their monthly statements, and then
receive an additional request for payment after any monthly statement
that 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. If 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 charges, late fees and
principal due, or extend or otherwise change payment schedules.
Greenwood's current policy 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 that time, (except in certain cases, such as
bankruptcy, where an uncollectible balance may be charged off earlier).
In general, after Greenwood has charged off an account, collections
personnel of DFS or Greenwood attempt to collect all or a portion of
the charged-off account for a period of approximately four months. If
those attempts do not succeed, Greenwood generally places the
charged-off amount 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 to attach the
cardmember's property or bank accounts or to garnish the cardmember's
wages. Greenwood and the Trust may also sell their respective interests
in charged-off accounts and related receivables to third parties,
either before or after collection efforts have been attempted.
Under the terms of the Pooling and Servicing Agreement, the
Trust's assets include any recoveries received on charged-off Accounts
(including the proceeds of the Trust's sales of any charged-off
receivables). These recoveries are treated as Finance Charge
Collections. The level of charged-off Accounts in the Trust, and
accordingly, the level of recoveries on charged-off Accounts in the
Trust, were initially lower than the levels of charged-off Accounts and
recoveries for the Discover Card portfolio as a whole, because
Greenwood did not select charged-off accounts to include in the Trust
when it was formed or for account additions. The levels of charged-off
Accounts and recoveries, each as a percentage of the Receivables in the
Trust, have increased over time to approximate more closely the levels
of charged-off Accounts and recoveries in the Discover Card portfolio
as a whole. However, Greenwood cannot assure you that these levels for
the Trust will consistently approximate these levels for the Discover
Card
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portfolio as a whole in the future. Similarly, any addition of accounts
to the Trust will temporarily reduce both the levels of charged-off
Accounts and recoveries, each as a percentage of the Receivables in the
Trust, because no added accounts will be charged-off accounts at the
time they are added to the Trust.
Greenwood may change its credit granting, servicing and
charge-off policies and its collection practices over time in
accordance with Greenwood's business judgment and applicable law. 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."
5. THE ACCOUNTS
a. Add the following as the first paragraph under the subheading
"General" on page 18:
The Receivables in the Accounts as of February 1, 1999 totaled
$27,450,960,880.70. The Accounts had an average balance of $917 and an average
credit limit of $5,264 as of February 1, 1999.
b. Delete the text under the subheading "Billing and Payments" on pages
18-20 and substitute the following:
Discover Card accounts generally have the same billing and
payment structure. Greenwood sends a monthly billing statement to each
cardmember who has an outstanding debit or credit balance of one dollar
or more. Discover Card accounts are grouped into multiple billing
cycles for operational purposes. Each billing cycle has a separate
billing date, on which Greenwood processes and bills to cardmembers all
activity that occurred in the related accounts during the period of
approximately 28 to 34 days that ends on that date. The Accounts
include accounts in all billing cycles.
Each cardmember with an outstanding debit balance in his or
her Discover Card account must generally make a minimum payment equal
to the greater of $10 or 1/48th of the new balance on the account at
the end of the billing cycle for the account, rounded to the next
higher whole dollar amount. If the cardmember's new balance is less
than $10, the minimum payment will be the new balance. Effective with
billing cycles beginning in March 1999, if a cardmember exceeds his or
her credit limit, Greenwood may require the cardmember to immediately
pay the amount that is above the credit limit. 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. A cardmember may pay the total amount
due at any time. Greenwood may also enter into arrangements with
delinquent cardmembers to extend or otherwise change payment schedules,
and to waive finance charges, late fees and/or principal due. Although
Greenwood does not expect these practices to have a material adverse
effect on the investors, collections may be reduced during any period
in which Greenwood offers
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cardmembers the opportunity to skip the minimum monthly payment or to
extend or change payment schedules.
Currently, Greenwood imposes periodic finance charges on the
balances in classic Discover Card accounts at variable annual
percentage rates (except in certain limited circumstances). 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. Currently,
periodic finance charges on purchases, cash advances and balance
transfers in classic Discover Card accounts are generally based on the
prime rate plus a margin (currently 8.99% to 13.99%), subject to
certain minimum rates currently ranging from 12.99% to 21.99%. These
rates are also based on a cardmember's purchase activity and payment
status. Effective with billing cycles beginning in March 1999, periodic
finance charges on purchases made using a classic Discover Card will be
based on a fixed instead of a variable rate. Depending on the variable
rate that applies to an account at the end of its billing cycle in
March 1999, Greenwood will generally assign a corresponding fixed rate
to the account. These new fixed rates will apply to the entire
outstanding balance of a cardmember's account. However, Greenwood will
continue to impose a variable rate of interest on cash advances charged
to classic Discover Card accounts, with a minimum rate of 20.99%. In
addition, in connection with balance transfers and for other
promotional purposes, certain account balances may accrue periodic
finance charges at lower fixed rates for varying periods of time.
Balances remaining from transactions posted to accounts in billing
cycles beginning before March 1, 1993 will continue to accrue periodic
finance charges at fixed rates.
Balances in Discover Platinum Card accounts accrue interest at
competitive fixed rates, except for balances transferred to these
accounts, which will accrue interest at promotional rates for short
periods of time. The periodic finance charge imposed on cash advances
made using a Discover Platinum Card is 19.99%.
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 $25 late fee each time a payment has
not been made by the required due date, a $25 fee for balances
exceeding a cardmember's credit limit as of the close of the
cardmember's monthly billing cycle, a $25 fee for any payment check
returned unpaid and a $25 fee for Discover Card cash advance, balance
transfer or other promotional checks that are returned by Greenwood due
to insufficient credit availability. Each of these $25 fees will
increase to $29 effective with billing cycles beginning in March 1999.
See "Risk Factors - Consumer Protection Laws and Regulations," "-
Payments and Maturity" and "- Ability of the Seller to Change Terms of
the Accounts."
The yield on the Accounts in the Trust, which
consists of the finance charges and fees, depends on various factors
including 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
11
<PAGE> 12
offers are made and accepted, and the extent to which Greenwood changes
the terms of the Cardmember Agreement. Reductions in the yield could,
if large enough, cause the commencement of the Amortization Period or
result in insufficient collections to pay interest and principal to
investors. Greenwood cannot assure you about any of these effects. See
"Risk Factors Basis Risk" and "Description of the Investor Certificates
- Amortization Events."
c. Delete the text under the heading "Composition of the Accounts" on
pages 20-21 and substitute the following:
COMPOSITION OF THE ACCOUNTS
Information concerning the composition of the Accounts is set
forth below. Information concerning the composition and historical
performance of the accounts in the Discover Card Portfolio is set forth
under "Composition and Historical Performance of the Discover Card
Portfolio."
Geographic Distribution. As of February 1, 1999, the following
five states had the largest Receivables balances:
<TABLE>
<CAPTION>
STATE PERCENTAGE OF TOTAL RECEIVABLES
----- BALANCE IN THE ACCOUNTS
-----------------------
<S> <C>
California..................... 11.3%
Texas.......................... 9.3%
New York....................... 6.8%
Florida........................ 5.9%
Illinois....................... 5.0%
</TABLE>
Credit Limit Information. As of February 1, 1999, the Accounts
had the following credit limits:
<TABLE>
<CAPTION>
RECEIVABLES PERCENTAGE OF
OUTSTANDING TOTAL RECEIVABLES
CREDIT LIMIT (000)'S OUTSTANDING
------------ ------- -----------
<S> <C> <C>
Less than or equal to $1,000.00.............. $ 606,013 2.2%
$1,000.01 to $2,000.00....................... $ 2,510,745 9.1%
$2,000.01 to $3,000.00....................... $ 2,809,608 10.2%
Over $3,000.00............................... $ 21,524,595 78.5%
---------- -----
Total............................... $ 27,450,961 100.0%
========== ======
</TABLE>
Seasoning. As of February 1, 1999, 88.4% of the Accounts were
at least 24 months old. The ages of the Accounts as of February 1, 1999
were distributed as follows:
12
<PAGE> 13
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AGE OF ACCOUNTS OF ACCOUNTS OF BALANCES
--------------- ----------- -----------
<S> <C> <C>
Less than 12 Months......................... 3.9% 1.9%
12 to 23 Months............................. 7.7% 6.6%
24 to 35 Months............................. 9.2% 9.8%
36 Months and Greater....................... 79.2% 81.7%
------ ------
Total.................................. 100.0% 100.0%
====== ======
</TABLE>
WE DISCUSS THE POTENTIAL EFFECTS OF THIS SEASONING ON THE
PERFORMANCE OF THE ACCOUNTS IN "RISK FACTORS -- EFFECTS OF THE
SELECTION PROCESS, SEASONING AND PERFORMANCE CHARACTERISTICS."
Summary Current Delinquency Information. As of February 1,
1999 the Accounts had the following delinquency statuses:
<TABLE>
<CAPTION>
AGGREGATE
BALANCES PERCENTAGE
PAYMENT STATUS (000'S) OF BALANCES
-------------- ------- -----------
<S> <C> <C>
Current.............................................. $ 23,438,327 85.4%
1 to 29 Days......................................... $ 1,948,969 7.1%
30 to 59 Days........................................ $ 791,434 2.9%
60 to 89 Days........................................ $ 498,110 1.8%
90 to 119 Days....................................... $ 281,733 1.0%
120 to 149 Days...................................... $ 270,453 1.0%
150 to 179 Days...................................... $ 221,935 0.8%
------------- --------
Total....................................... $ 27,450,961 100.0%
============= ======
</TABLE>
6. COMPOSITION AND HISTORICAL PERFORMANCE OF THE DISCOVER CARD PORTFOLIO
a. Delete the text under the heading "General" on page 21 and
substitute the following:
GENERAL
Except to the extent we specifically identify information as
relating to the Accounts in the Trust, all of the information
describing the composition and historical performance of Discover Card
accounts in this prospectus reflects the composition and historical
performance of the Discover Card portfolio as a whole, and not only
that of the Accounts in the Trust. Greenwood opened a limited number of
Discover Card accounts using 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 in this prospectus. None of these accounts is included in the
Trust. Greenwood has no statistical or other basis for determining the
effects, if any, of the selection process, although Greenwood believes
that the Accounts are representative of the Discover Card portfolio
13
<PAGE> 14
in all material respects. Greenwood cannot assure you, however, that
the Accounts have performed or will perform similarly to the Discover
Card portfolio. Greenwood also cannot assure you that the historical
performance of the Discover Card portfolio will be representative of
its performance in the future. See "The Accounts Billing and
Payments," "Risk Factors -- Basis Risk" and "-- Effects of the
Selection Process, Seasoning and Performance Characteristics." WE ALSO
DISCUSS THE ECONOMIC FACTORS THAT AFFECT THE PERFORMANCE OF THE
DISCOVER CARD PORTFOLIO IN "RISK FACTORS -- SOCIAL, LEGAL AND ECONOMIC
FACTORS."
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 21-24 and substitute the following:
COMPOSITION OF DISCOVER CARD PORTFOLIO
Geographic Distribution. The Discover Card portfolio is not highly
concentrated geographically. As of November 30, 1998, the following five states
had the largest receivables balances:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL RECEIVABLES BALANCE
OF DISCOVER CARD PORTFOLIO
STATE AS OF NOVEMBER 30, 1998
----- -----------------------
<S> <C>
California................. 11.3%
Texas...................... 9.3%
New York................... 6.7%
Florida.................... 6.0%
Illinois................... 5.1%
</TABLE>
No other state accounted for more than 5% of the total receivables
balance of the Discover Card portfolio as of November 30, 1998.
Credit Limit Information. As of November 30, 1998, the accounts in the
Discover Card portfolio had the following credit limits:
<TABLE>
<CAPTION>
RECEIVABLES PERCENTAGE OF
OUTSTANDING TOTAL RECEIVABLES
CREDIT LIMIT (000)'S OUTSTANDING
------------ ------- -----------
<S> <C> <C>
Less than or equal to $1,000.00........ $ 632,180 2.1%
$1,000.01 to $2,000.00................. $ 2,782,815 9.2%
$2,000.01 to $3,000.00................. $ 2,927,625 9.7%
Over $3,000.00......................... $23,788,446 79.0%
---------- -----
Total......................... $30,131,066 100.0%
---------- ======
</TABLE>
Seasoning. As of November 30, 1998, 88.3% of the accounts in the
Discover Card portfolio were at least 24 months old. The ages of accounts in the
Discover Card portfolio as of November 30, 1998 were distributed as follows:
14
<PAGE> 15
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AGE OF ACCOUNTS OF ACCOUNTS OF BALANCES
--------------- ----------- -----------
<S> <C> <C>
Less than 12 Months......................... 5.0% 2.3%
12 to 23 Months............................. 6.7% 6.0%
24 to 35 Months............................. 8.9% 9.3%
36 Months and Greater....................... 79.4% 82.4%
----- -----
Total.............................. 100.0% 100.0%
====== ======
</TABLE>
Summary Yield Information. The annualized aggregate monthly yield for
the Discover Card portfolio is summarized as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED ELEVEN MONTHS ENDED TWELVE MONTHS ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Aggregate Monthly Yield (1)
Excluding Recoveries (2) 18.02% 18.19% 17.72%
Including Recoveries (3) 18.76% 18.90% 18.20%
</TABLE>
- -----------
(1) Greenwood calculates "Monthly Yield" by dividing the 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. "Aggregate Monthly Yield" is
the average of Monthly Yields annualized for each period shown.
(2) Aggregate Monthly Yield excluding any recoveries received with respect
to charged-off accounts.
(3) Aggregate Monthly Yield including recoveries received with respect to
charged-off accounts. Recoveries received with respect to Receivables
in the Trust that have been charged off as uncollectible (including the
proceeds of the Trust's sales of these Receivables, but excluding
proceeds of Greenwood's sales of charged-off receivables that Greenwood
has removed from the Trust) are included in the Trust and are treated
as Finance Charge Collections. The level of recoveries on accounts that
Greenwood adds to the Trust from time to time will initially be lower
than the level of recoveries for the Discover Card portfolio because
Greenwood will not include charged-off accounts in the accounts it
selects to include in the Trust. Greenwood believes that, over time,
the level of recoveries on these added Accounts, as a percentage of the
Receivables in the Trust, will increase to approximate more closely the
level of recoveries on accounts in the Discover Card portfolio as a
whole. However, Greenwood cannot predict the extent of this increase
and cannot assure you that the level of recoveries for the Trust will
consistently approximate the level of recoveries for the Discover Card
portfolio as a whole in the future.
Summary Current Delinquency Information. As of November 30, 1998, the
accounts in the Discover Card portfolio had the following delinquency statuses:
15
<PAGE> 16
<TABLE>
<CAPTION>
AGGREGATE
BALANCES PERCENTAGE
PAYMENT STATUS (000'S) OF BALANCES
- -------------- ------- -----------
<S> <C> <C>
Current.............................................. $ 26,020,162 86.3%
1 to 29 Days......................................... $ 2,122,334 7.0%
30 to 59 Days........................................ $ 637,435 2.1%
60 to 89 Days........................................ $ 480,072 1.6%
90 to 119 Days....................................... $ 352,966 1.2%
120 to 149 Days...................................... $ 287,277 1.0%
150 to 179 Days...................................... $ 230,820 0.8%
----------- -----------
Total.................................. $ 30,131,066 100.0%
=========== ===========
</TABLE>
Summary Historical Delinquency Information. The accounts in the
Discover Card portfolio had the following historical delinquency rates:
<TABLE>
<CAPTION>
AVERAGE OF TWELVE MONTHS AVERAGE OF ELEVEN MONTHS AVERAGE OF TWELVE MONTHS
ENDED NOVEMBER 30, 1998 ENDED NOVEMBER 30, 1997 ENDED DECEMBER 31, 1996
----------------------- ----------------------- -----------------------
DELINQUENT DELINQUENT DELINQUENT
AMOUNT AMOUNT AMOUNT
(000'S) PERCENTAGE(1) (000'S) PERCENTAGE(1) (000'S) PERCENTAGE(1)
------- ------------- ------- ------------- ------- -------------
<C> <C> <C> <C> <C> <C> <C>
30-59 Days....... $ 759,521 2.6% $ 743,464 2.6% $ 680,645 2.7%
60-89 Days....... $ 456,059 1.5% $ 432,410 1.5% $ 361,992 1.4%
90-179 Days...... $ 853,961 2.9% $ 803,204 2.8% $ 593,661 2.3%
---------- ---- ----------- ---- ----------- ----
Total....... $2,069,541 7.0% $ 1,979,078 6.9% $ 1,636,298 6.4%
========== ==== =========== ==== =========== ====
</TABLE>
- ----------
(1) Greenwood calculates the percentages by dividing the Delinquent Amount
by Average Receivables Outstanding for each period. The "Delinquent
Amount" is the average of the monthly ending balances of delinquent
accounts during the periods indicated. The "Average Receivables
Outstanding" is the average of the monthly average amount of
receivables outstanding during the periods indicated.
WE DISCUSS THE ECONOMIC FACTORS THAT AFFECT THE PERFORMANCE OF THE
DISCOVER CARD PORTFOLIO, INCLUDING DELINQUENCIES, IN "RISK FACTORS - SOCIAL,
LEGAL AND ECONOMIC FACTORS."
Summary Charge-Off Information. The accounts in the Discover Card
portfolio have had the following historical charge-offs:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED ELEVEN MONTHS ENDED TWELVE MONTHS ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average Receivables Outstanding (1) $ 29,749,158 $ 28,403,076 $ 25,542,718
Gross Charge Offs $ 2,215,002 $ 1,891,601 $ 1,458,450
Gross Charge-Offs as a Percentage of
Average Receivables Outstanding (2) 7.45% 7.27% 5.71%
</TABLE>
- -----------------
(1) "Average Receivables Outstanding" is the average of the monthly average
amount of receivables outstanding during the periods indicated.
(2) Recoveries with respect to receivables in the Trust that have been
charged off as uncollectible (including the proceeds of the Trust's
sales of these receivables, but excluding proceeds of Greenwood's sales
of charged-off receivables that Greenwood has removed from the Trust)
are property of the Trust and are treated as Finance Charge
Collections.
16
<PAGE> 17
WE DISCUSS THE ECONOMIC FACTORS THAT AFFECT THE PERFORMANCE OF THE
DISCOVER CARD PORTFOLIO, INCLUDING CHARGE-OFFS, IN "RISK FACTORS - SOCIAL, LEGAL
AND ECONOMIC FACTORS."
Summary Payment Rate Information(1). The accounts in the Discover Card
portfolio have had the following historical monthly payment rates:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED ELEVEN MONTHS ENDED TWELVE MONTHS ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Average Monthly Payment Rate(2) 15.42% 14.51% 15.24%
High Monthly Payment Rate 17.01% 16.31% 18.08%
Low Monthly Payment Rate 13.90% 12.41% 13.33%
</TABLE>
- ----------
(1) Greenwood calculates the "Monthly Payment Rate" by dividing monthly
cardmember remittances by the cardmember receivable balance outstanding
as of the beginning of the month.
(2) Greenwood calculates the "Average Monthly Payment Rate" for a period by
dividing the sum of individual monthly payment rates for the period by
the number of months in the period.
c. Delete the text under the subheading "Payment of the Investor
Certificates" located on page 24 and substitute the following:
Minimum Monthly Payment Rates. Whether the Trust can repay
your principal in full at the expected maturity of your Investor
Certificates will depend on the yield, the charge-off rate and the
monthly payment rate for the Receivables in the Trust, and certain
other factors. The Trust will need a minimum monthly payment rate of
9.28% to continue to pay Class A principal in monthly installments
through May 15, 1999 (or the next business day) and a minimum payment
rate of 6.46% in May 1999 to pay Class B principal in full on June 15,
1999 (or the next business day), in each case assuming:
o a yield of 18.76% per year (including recoveries);
o a charge-off rate of 7.45% per year;
o that the level of Principal Receivables in the Trust remains
above the minimum levels required by the Pooling and
Servicing Agreement;
o that this Series is not receiving collections that were
originally allocated to another series; and
o that no Amortization Event occurs.
The Accounts' actual yield, charge-off rate and monthly
payment rate, and the amount of outstanding Principal Receivables in
the Trust, will depend on a variety of factors, including, without
limitation, seasonal variations, extensions and other modifications of
payment terms, availability of other sources of credit, general
economic conditions and consumer spending and borrowing patterns.
Accordingly, Greenwood cannot assure you that the Trust will be able
to pay Class A principal in full by May 15, 1999 (or the next business
day) or that it will be able to pay Class B principal in full at
maturity.
17
<PAGE> 18
Economic Early Amortization Events. The Series Supplement
provides that an Amortization Event will occur on any Distribution
Date on which:
o the three-month rolling average Series Excess
Spread is less than zero; and
o the three-month rolling average Group Excess
Spread is less than zero.
"Series Excess Spread" means, generally, for any
Distribution Date with respect to this Series:
o the Class A and Class B Finance Charge
Collections and other Class A and Class
B income, minus
o the sum of --
o Class A and Class B monthly interest;
o Class A and Class B monthly servicing
fees;
o Class A and Class B monthly charge-offs;
and
o the Credit Enhancement Fee,
in each case for the Distribution Date. The three-month rolling
average Series Excess Spread Percentage for this Series was 4.18% for
the Distribution Date in February 1999. "Group Excess Spread" for any
Distribution Date is the sum of the Series Excess Spreads for each
series in the Group. You should review the more precise definition of
"Series Excess Spread" in the "Glossary of Terms" in this prospectus.
The three-month rolling average Group Excess Spread Percentage
for Group One was 3.89% for the Distribution Date in February 1999. The
"Group Excess Spread Percentage" equals:
o the Group Excess Spread, multiplied by twelve,
divided by
o the sum of the Series Investor Interests for all
series in Group One.
If an Amortization Event occurs because of declines in Group
Excess Spread and in Series Excess Spread, or otherwise, the Trust will
begin to repay principal on the following Distribution Date. Greenwood
cannot predict how much principal the Trust will pay to you on any
Distribution Date after an Amortization Event, or when you will receive
your final principal payment. If deficiencies in Series Excess Spread
cause the Available Subordinated Amount or the Available Shared Credit
Enhancement Amount to be reduced to zero, you may not receive all of
your interest, or you may lose a portion of your principal.
7. THE TRUST
Delete the second paragraph under "Formation of the Trust" located on
page 25 and substitute the following:
18
<PAGE> 19
The property of the Trust includes:
o the Receivables;
o cash payments by cardholders;
o cash recoveries on receivables in the Trust that
have been charged off as uncollectible and
proceeds from the Trust's sales of those
receivables; and
o credit support or enhancement for each series.
The property of the Trust may also include any or all of the
following:
o interests in other credit card receivables pools;
o additional funds that Greenwood may elect to add
to the Trust;
o currency swaps for series denominated in foreign
currencies; and
o interest rate protection agreements.
Pursuant to the Pooling and Servicing Agreement, Greenwood has
the right, and in some circumstances the obligation, to (a) designate
additional Accounts to be included in the Trust (these Accounts may be
Discover Card accounts or credit accounts which Greenwood or an
affiliate of Greenwood has originated), or (b) add participation
interests to the Trust, subject to certain conditions. See "-- Addition
of Accounts." In addition, Greenwood has the right, subject to certain
conditions, to designate Accounts for removal from the Trust. See "--
Removal of Accounts."
8. DESCRIPTION OF THE INVESTOR CERTIFICATES
a. Delete the first two full sentences in the first paragraph on page
34 under "Reallocation of Series Investor Percentage of Collections Among Series
in Group One" and substitute the following:
Series 1993-2 is included in the "Group One" group of series.
In addition to the series already outstanding, the Trust may issue
additional series in Group One or in other Groups from time to time in
the future. Under certain circumstances, Series 1993-2 will be eligible
to receive Collections originally allocated to other series in Group
One. See "-- Reallocation of Series Among Groups." Series that are in
their Amortization Periods or Early Accumulation Periods, if
applicable, will not be entitled to receive any reallocated Principal
Collections from other series.
b. Delete Section (37) under "Distribution of Collections and
Application of Collections and Certain Other Amounts" on page 42 and substitute
the following:
(37) If there are one or more other outstanding series
included in Group One that provide for the reallocation of excess
Collections, excess Principal Collections with respect to each such
series (i.e., all Principal Collections during such series' Revolving
Period and all Principal Collections in excess of the amount required
to fund or pay
19
<PAGE> 20
Certificate Principal with respect to such series during such series'
Accumulation Period, Controlled Liquidation Period, Amortization
Period or Early Accumulation Period, as applicable) also will be
deposited into the Group One Principal Collections Reallocation
Account. During the Accumulation Period only, any remaining shortfall
in funding the portion of the Principal Distribution Amount that is
allocable to Class A, to an amount equal to the product of (i) a
fraction the numerator of which is the amount of the remaining
shortfall and the denominator of which is the sum of the portion of
such shortfalls allocated to the class designated by the letter A of
all series included in Group One that provided for such reallocation
and that are in their Accumulation Period or Controlled Liquidation
Period, as applicable and (ii) the amount on deposit in the Group One
Principal Collections Reallocation Account, will be withdrawn from
such account and deposited into the Series Principal Funding Account.
c. Delete the first sentence under the subheading "Sale of Seller
Interest" on page 53 and substitute the following:
Initially, the Trustee will (a) issue the Seller
Certificate, if certificated, to Greenwood or (b) record Greenwood's
uncertificated fractional undivided interest in the Trust in its books
and records.
d. Delete the text under the subheading "Evidence as to Compliance" on
page 63 and substitute the following:
Evidence as to Compliance. The Pooling and Servicing Agreement
provides that on or about March 15 of each calendar year, commencing in March
1999, the Master Servicer will cause a firm of nationally recognized independent
public accountants to furnish a report to each of the Trustee, the Master
Servicer and each Servicer to the effect that:
o the accountants are of the opinion that the system of
internal accounting controls in effect on the date of their
report relating to the servicing procedures performed by the
Servicer under the Pooling and Servicing Agreement was
sufficient to prevent errors and irregularities that would
be material to the assets of the Trust;
o nothing has come to the accountants' attention that would
cause them to believe the servicing has not been conducted
in compliance with the Pooling and Servicing Agreement,
except for those exceptions that the accountants believe to
be immaterial or that they otherwise set forth in their
report; and
o the accountants have compared the mathematical calculations
of the amounts set forth in the Servicer's monthly
certificates delivered during the transition period from
January 1, 1998 through November 30, 1998, or the preceding
fiscal year ended November 30, as applicable, covered by
their report with the Servicer's computer reports that
generated these amounts, confirming that the amounts are in
agreement, except for those exceptions that the accountants
believe to be immaterial or that they otherwise set forth in
their report.
The procedures to be followed by the accountants will not constitute
an audit conducted in accordance with generally accepted auditing
standards.
20
<PAGE> 21
The Pooling and Servicing Agreement provides that the Master
Servicer will deliver to each of the Trustee, Greenwood (on behalf of
the Holder of the Seller Certificate) and the Rating Agencies on or
before March 15 of each calendar year beginning in March 1999, an
annual statement signed by an officer of the Master Servicer to the
effect that:
o in the course of the officer's duties as an officer of the
Master Servicer, he or she would normally obtain knowledge
of any Master Servicer Termination Event, and
o whether or not the officer has obtained knowledge of any
Master Servicer Termination Event during the transition
period from January 1, 1998 through November 30, 1998, or
the preceding fiscal year ended November 30, as applicable,
and, if so, specifying each Servicer Termination Event of
which the signing officer has knowledge and the nature of
the Servicer Termination Event.
The Pooling and Servicing Agreement also provides that each Servicer
will deliver a similar statement, covering the applicable period, with
respect to Servicer Termination Events.
9. THE SELLER
a. Delete the text under the heading "Greenwood" on page 64 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. 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 DFS has had extensive experience in the
credit operations of other credit card issuers. DFS performs sales and
marketing activities, provides operational support for the Discover
Card program and maintains merchant relationships.
The enactment of CEBA placed certain limitations on Greenwood,
including a requirement that Greenwood engage only in activities in
which it was engaged as of March 5, 1987. Since NOVUS acquired
Greenwood, as a result of these and earlier limitations, Greenwood has
not engaged in the business of making commercial loans. See "Risk
Factors -- Legislation." 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.
b. Add the following subsection immediately before "Insolvency-Related
Matters" on page 64:
21
<PAGE> 22
YEAR 2000
Greenwood and DFS, like most other companies, use computer
programs that identify particular dates using only the last two digits
of a year, instead of all four digits. If these programs cannot
recognize "00" as a date in the year 2000, the programs may be unable
to process transactions properly with dates in the year 2000 and beyond
(the "Year 2000 issue"). Greenwood and DFS are taking steps to address
the Year 2000 issue, including updating their mission critical internal
computer systems and programs as follows:
o they have inventoried and identified those internal computer
systems and programs that may be affected by the Year 2000
issue;
o they have completed an assessment of whether these systems
and programs can accommodate references to the year 2000 and
beyond; and
o they have completed the remediation and testing of
substantially all mission critical systems (including
systems and programs used in connection with the Trust and
with servicing Accounts in the Trust).
Greenwood and DFS expect that integration testing of
substantially all of these systems with material external
counterparties and suppliers, which is currently underway, will be
completed during 1999. The Trust has not borne and will not bear any
of the costs associated with this inventory, identification,
assessment, remediation and testing.
Greenwood has issued over twenty-eight million Discover
Cards that expire in the year 2000 or after, and has not yet
experienced any material problems with these "00" expiration dates.
Greenwood and DFS continue to work with service establishments that
accept the Discover Card to help insure that all point-of-sale
hardware can accommodate cards with these new expiration dates.
There are various risks associated with the Year 2000 issue,
including the possibility that the mission critical computer system
and programs of Greenwood and DFS may fail. In addition, Greenwood and
DFS may also be materially adversely affected by the failure of
external counterparties and suppliers to remediate their own Year 2000
issues. Greenwood and DFS are diligently working with their material
external counterparties and suppliers to assess the efforts of these
counterparties and suppliers to deal with their Year 2000 issues, and
to assess the exposure that Greenwood, DFS and the Trust may have to
them.
Greenwood and DFS also have business continuity plans in
place that cover their operations (including operations of the Trust
and those related to servicing Accounts in the Trust). Greenwood and
DFS intend to document and test Year 2000 specific contingency plans
(including plans for the Trust) during 1999 as part of their Year 2000
risk mitigation efforts.
The expectations of Greenwood and DFS about their timely
completion of Year 2000 modifications are subject to uncertainties
that could cause actual results to differ materially from what has
been discussed above. Factors that could influence the effective
timing of remediation efforts include: (i) the success of Greenwood
and DFS in
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<PAGE> 23
identifying internal computer systems and programs that contain
two-digit year codes, (ii) the nature and amount of programming and
testing required to upgrade or replace each of the affected computer
systems and programs, (iii) the nature and amount of testing,
verification and reporting required by regulators, (iv) the cost and
availability of related labor and consulting services, and (v) the
success of Greenwood's and DFS's material external counterparties and
suppliers in addressing their respective Year 2000 issues.
c. Add at the end of the last sentence of the first paragraph under
the subheading "Insolvency-Related Matters" on page 64:
In addition, if the Federal Deposit Insurance Corporation is
appointed as conservator or receiver for Greenwood, it 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." If 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 Trust may not have adequate
collateral to pay you the outstanding principal and accrued interest
on your Investor Certificates. In a 1993 case, the Resolution Trust
Corporation, which has ceased to exist as of December 31, 1995 (the
Federal Deposit Insurance Corporation has taken over its
responsibilities), repudiated certain secured zero-coupon bonds issued
by a savings association. In that case, a United States federal
district court decided 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.
10. 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 66 and
substitute the following:
These 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 under it), Fair Credit Reporting Act and
Fair Debt Collection Practices Act.
b. Delete the last full paragraph under the heading "Consumer
Protection Laws and Debtor Relief Laws Applicable to the Receivables" on page
67.
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
a. Delete the text under the heading "Certain Federal Income Tax
Consequences" on pages 67-73 and substitute the following:
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<PAGE> 24
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This summary of the material federal income tax consequences
to investors in Investor Certificates is based on the opinion of Latham
& Watkins ("Tax Counsel") as counsel to Greenwood. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations and judicial and administrative rulings and
decisions as of the date of this prospectus. We cannot assure you that
the Internal Revenue Service (the "IRS") will agree with the
conclusions in this summary, and we have not sought and will not seek a
ruling from the IRS on the expected federal tax consequences described
in this summary. Subsequent legislative, judicial or administrative
changes--which may or may not be applied retroactively--could change
these tax consequences.
Although we provide certain limited discussions of particular
topics, in general we have not considered your particular tax
consequences in this summary if you are an entity subject to special
treatment under the federal income tax laws, such as:
o a life insurance company;
o a tax-exempt organization;
o a financial institution;
o a broker-dealer;
o an investor that has a functional currency other
than the United States dollar; or
o an investor that holds Investor Certificates as
part of a hedge, straddle or conversion
transaction.
We also do not deal with all aspects of federal income
taxation that may affect you in light of your individual
circumstances. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISORS
ABOUT THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES TO YOU OF PURCHASING, OWNING AND DISPOSING OF INVESTOR
CERTIFICATES.
TAX TREATMENT OF THE INVESTOR CERTIFICATES AS DEBT
Greenwood will treat the Investor Certificates as debt for
federal, state and local income and franchise tax purposes. By
accepting an Investor Certificate, you also will commit to treat your
Investor Certificates as debt of Greenwood for federal, state and
local income and franchise tax purposes. However, the Pooling and
Servicing Agreement generally refers to the transfer of the
Receivables as a "sale," and Greenwood has informed its tax counsel
that:
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<PAGE> 25
o Greenwood uses different criteria to determine the
nontax accounting treatment of the transaction,
and
o for regulatory and financial accounting purposes,
Greenwood will treat the transfer of the
Receivables under the Pooling and Servicing
Agreement as a transfer of an ownership interest
in the Receivables and not as the creation of a
debt obligation.
In general, whether for federal income tax purposes a
transaction constitutes a purchase or a loan secured by the
transferred property is a question of fact. This question is
generally resolved based on the economic substance of the
transaction, rather than its form. In the case of the Investor
Certificates, the issue is whether the investors have loaned money to
Greenwood or have purchased Receivables from Greenwood (through
ownership of the Investor Certificates). In some cases, courts have
held that a taxpayer is bound by the form of the transaction even if
the substance does not comport with its form. Although the matter is
not free from doubt, Greenwood's tax counsel believes that the
rationale of those cases will not apply to this transaction, based,
in part, upon:
o Greenwood's expressed intent to treat the Investor
Certificates for federal, state and local income
and franchise tax purposes as debt secured by the
Receivables and other assets held in the Trust,
and
o each investor's commitment, by accepting an
Investor Certificate, similarly to treat the
Investor Certificate for federal, state and local
income and franchise tax purposes as debt.
Although the IRS and the courts have established several
factors to be considered in determining whether, for federal income
tax purposes, a transaction in substance constitutes a purchase of an
interest in the Receivables or a loan secured by the Receivables
(including the form of the transaction), it is Greenwood's tax
counsel's opinion that the primary factor is whether the investors
(through ownership of the Investor Certificates) have assumed the
benefits and burdens of ownership of the Receivables. Greenwood's tax
counsel has concluded for federal income tax purposes that, although
the matter is not free from doubt, the benefits and burdens of
ownership of the Receivables have not been transferred to the
investors (through ownership of the Investor Certificates).
For the reasons described above, Greenwood's tax counsel has
advised Greenwood that, in its opinion, under applicable law the
Investor Certificates will be treated as debt of Greenwood for federal
income tax purposes, although the matter is not free from doubt as the
IRS or the courts may not agree. See "--Possible Characterization of
the Investor Certificates" for a discussion of your federal income tax
consequences if your Investor Certificates are not treated as debt of
Greenwood for federal income tax purposes. Except for that discussion,
the following discussion assumes that your Investor Certificates will
be treated as debt of Greenwood for federal income tax purposes.
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<PAGE> 26
UNITED STATES INVESTORS
The rules set forth below apply to you only if you are a "United
States Person." Generally, a "United States Person" is:
o a citizen or resident of the United States,
o a corporation or partnership created or organized in the
United States or under the laws of the United States or of
any state,
o an estate the income of which is subject to United States
federal income taxation regardless of the source of that
income, or
o a trust if a court within the United States is able to
exercise primary supervision over the trust's
administration, 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 the source of that income).
Stated Interest on Investor Certificates. Subject to the discussion
below:
o if you use the cash method of accounting for tax purposes,
you will be taxed on the interest on your Investor
Certificate at the time it is paid to you; or
o if you use the accrual method of accounting for tax
purposes, you will be taxed on the interest on your Investor
Certificate at the time it accrues.
The federal government will tax your interest as ordinary income.
Generally, interest you receive on your Investor Certificates will
constitute "investment income" for purposes of certain limitations of
the Code concerning the deductibility of investment interest expense.
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<PAGE> 27
Market Discount. You should be aware that if you resell your
Investor Certificates, you may be affected by the market discount
provisions of the Code. These rules generally provide that, subject to
a statutorily-defined de minimis exception, if you acquire an Investor
Certificate at a market discount (i.e., at a price below its stated
redemption price at maturity) and you later recognize gain upon a
disposition of the Investor Certificate (or dispose of it in certain
nonrecognition transactions such as a gift), you must treat as
ordinary interest income at the time of disposition the lesser of your
gain (or appreciation, in the case of an applicable nonrecognition
transaction) or the portion of the market discount that accrued while
you held the Investor Certificate. If you acquired your Investor
Certificate at a market discount, you will be required to treat as
ordinary interest income the portion of any principal payment
(including a payment on maturity) attributable to accrued market
discount on your Investor Certificate. If you acquire an Investor
Certificate at a market discount, you may be required to defer a
portion of any interest expense that you might otherwise be able to
deduct on any debt you incurred or maintained to purchase or carry the
Investor Certificate until you dispose of the Investor Certificate in
a taxable transaction.
If you acquired your Investor Certificate at a market
discount, you may elect to include market discount in income as the
discount accrues, either on a ratable basis or, if you so elect, on a
constant interest rate basis. Once you make this election to include
the discount in your income as it accrues, it applies to all market
discount obligations that you acquire on or after the first day of the
first taxable year to which your election applies, and you may not
revoke it without the consent of the IRS. If you elect to include
market discount in income in accordance with the preceding sentence,
you will not recognize ordinary income on sales, principal payments
and certain other dispositions of the Investor Certificates and you
will not have to defer interest deductions on debt related to the
Investor Certificates.
The Clinton Administration has proposed legislation that
would require you, if you are an accrual method taxpayer that acquired
your Investor Certificate at a market discount, to include the
discount in income as it accrues, subject to certain limitations. As
proposed, this provision would apply to Investor Certificates that you
acquire on or after the date of enactment. Greenwood cannot predict
whether this legislation will be enacted, or if enacted, what its
ultimate form or effective date will be.
Amortizable Bond Premium. Generally, if the price you paid
for your Investor Certificate or your tax basis in your Investor
Certificate held as a capital asset exceeds the sum of all amounts
payable on the Investor Certificate after your acquisition date (other
than payments of qualified stated interest), the excess may constitute
amortizable bond premium that you may elect to amortize under the
constant interest rate method over the period from your acquisition
date to the Investor Certificate's maturity date. If your Investor
Certificate is subject to Section 1272(a)(6) of the Code (which
applies 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), the application of the amortizable bond premium rules is
unclear, as Treasury Regulations specifically exclude
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these instruments from the amortizable bond premium rules contained in
those regulations, but do not describe how bond premium should
treated. Because no Treasury Regulations have been issued interpreting
Section 1272(a)(6), you should consult your own tax advisors about the
possible application of these rules. You may generally treat
amortizable bond premium 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. If
you elect to amortize bond premium, you must generally reduce your tax
basis in the related Investor Certificate by the amount of bond
premium used to offset interest income. If your Investor Certificate
purchased at a premium is redeemed in full prior to its maturity, you
should be entitled to a deduction for any remaining unamortized bond
premium in the taxable year of redemption if you have elected to
amortize bond premium.
Sales of Investor Certificates. In general, you will
recognize gain or loss upon the sale, exchange, redemption or other
taxable disposition of your Investor Certificate measured by the
difference between:
o 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
o your tax basis in the Investor Certificate (as
increased by any market discount that you
previously included in income and decreased by any
deductions previously allowed to you for
amortizable bond premium and by any payments
reflecting principal that you received with
respect to the Investor Certificate).
Subject to the market discount rules discussed above and to
the one-year holding period requirement for long-term capital gain
treatment, any gain or loss generally will be long-term capital gain
or loss, provided you held the Investor Certificate as a capital
asset. The maximum federal income tax rate applicable to capital gains
and ordinary income for corporations is 35%. The maximum ordinary
federal income tax rate for individuals, estates and trusts is 39.6%,
whereas the maximum long-term capital gains rate for those taxpayers
is 20%.
FOREIGN INVESTORS
The following summary of the United States federal income
and estate tax consequences of the purchase, ownership, sale or other
disposition of an Investor Certificate applies to you only if you are
a "non-U.S. Holder." You are generally a "non-U.S. Holder" if, for
United States federal income tax purposes, you are:
o a foreign corporation,
o a nonresident alien individual,
o a foreign estate or trust, or
o a foreign partnership,
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<PAGE> 29
as each term is defined in the Code. Some non-U.S. Holders (including
certain residents of certain United States possessions or territories)
may be subject to special rules not discussed in this summary.
Interest paid to you on your Investor Certificates will not
be subject to withholding of United States federal income tax,
provided that:
o these interest payments are effectively connected
with the conduct of your trade or business within
the United States and you provide an appropriate
statement to that effect, or
o you are not a "10 percent shareholder" of
Greenwood or a "controlled foreign corporation"
with respect to which Greenwood is a "related
person" within the meaning of the Code, and you
(and, if relevant, a financial institution on your
behalf) provide an appropriate statement, signed
under penalties of perjury, certifying that you
are not a United States Person and providing your
name and address.
Your 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 before payment.
You generally will not be subject to United States federal
income tax on gain realized on the disposition of your Investor
Certificate (other than gain attributable to accrued interest, which
is addressed in the preceding paragraph); provided that
o the gain is not effectively connected with your
conduct of a trade or business within the United
States, and
o if you are an individual,
o you have not been present in the United
States for 183 days or more in the
taxable year of the sale, exchange or
redemption, or
o you do not have a "tax home" in the
United States and the gain is not
attributable to an office or other fixed
place of business that you maintain in
the United States.
If the interest or gain on your Investor Certificate is
effectively connected with your conduct of a trade or business within
the United States, then although you will be exempt from the
withholding of tax previously discussed if you provide an appropriate
statement, you generally will be subject to United States federal
income tax on the interest or gain at regular federal income tax rates
in a similar fashion to a United States Person. See "--United States
Investors." In addition, if you are a foreign corporation, you may be
subject to a branch profits tax equal to 30% of your "effectively
connected earnings and profits" within the meaning of the Code for the
taxable year, as adjusted for certain items, unless you qualify for a
lower rate under an applicable tax treaty.
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<PAGE> 30
If you are an individual and are not a citizen or resident of
the United States at the time of your death, your Investor Certificates
will not be subject to United States federal estate tax as a result of
your death if, immediately before death,
o you were not a "10 percent shareholder" of
Greenwood, and
o your interest on the Investor Certificate was not
effectively connected with your conduct of a trade
or business within the United States.
THE ABOVE DESCRIPTION OF THE POTENTIAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS IS NECESSARILY
INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS ABOUT THESE
MATTERS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
If you are a United States Person but not a corporation,
financial institution or certain other type of entity, information
reporting requirements will apply to:
o certain payments of principal and interest on
an Investor Certificate; and
o proceeds of certain sales before maturity.
In addition, if you do not provide a correct taxpayer identification
number and other information, or do not comply with certain other
requirements or otherwise establish an exemption, Greenwood, a paying
agent, or a broker, as the case may be, will be required to withhold
from these payments to you a tax equal to 31% of each payment.
Treasury Regulations provide that backup withholding and
information reporting will not apply to payments of principal and
interest on Investor Certificates by Greenwood or its paying agents to
you if you certify under penalties of perjury that you are not a
United States Person or otherwise establish an exemption, provided
that neither Greenwood nor its paying agents has actual knowledge that
you are a United States Person or that the conditions of any other
exemption are not in fact satisfied. Certain information reporting
requirements will apply to payments of the proceeds of your 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, unless:
o you are an exempt recipient; or
o the broker has evidence in its records that you
are not a United States Person and no actual
knowledge that the evidence is false and certain
other conditions are met.
After 1999, these payments may be subject to backup withholding unless
they are exempt from information reporting. Information reporting and
backup withholding will apply to payments of the proceeds of your sale
of an Investor Certificate to or through the United States office of a
broker unless:
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o you make appropriate certifications that you are
not a United States Person (and no agent of the
broker who is responsible for receiving or
reviewing your statement has actual knowledge that
it is incorrect), or
o you otherwise establish an exemption.
If you provide the IRS with the information it requires, you
will receive a refund or a credit against your United States federal
income tax liability for any amounts withheld from your payments under
the backup withholding rules.
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 that 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. You are urged to consult your own tax
advisors with respect to these final regulations.
POSSIBLE CHARACTERIZATION OF THE INVESTOR CERTIFICATES
The above discussion assumes that the Investor Certificates
will be treated as debt of Greenwood for federal income tax purposes.
However, although Greenwood's tax counsel has rendered an opinion to
that effect with respect to the Investor Certificates, the matter is
not free from doubt, and we cannot assure you that the IRS or the
courts will agree with Greenwood's tax counsel's opinion. If the IRS
were to contend successfully that the Investor Certificates are not
debt of Greenwood for federal income tax purposes, it could find that
the arrangement created by the Pooling and Servicing Agreement
constitutes a partnership that could be treated as a "publicly traded
partnership" taxable as a corporation.
If your 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), that partnership
would not be subject to federal income tax. Rather, you would be
required to include in income your share of the income and deductions
generated by the assets of the Trust, as determined under partnership
tax accounting rules. In that event, the amount, timing and character
of the income required to be included in your income could differ
materially from the amount, timing and character of income if your
Investor Certificates were characterized as debt of Greenwood. 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 you, as a partner in such a partnership, could be taxed on
your share of the partnership's income in those states.
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<PAGE> 32
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
non-U.S. Holder would be credited for the 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 Investors." 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 non-U.S. Holder that is engaged in a trade or business
within the United States to which the income with respect to an
Investor Certificate 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 the non-U.S.
Holder's distributive share of the partnership's interest income.
If your 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 you. See "State Tax Consequences." Under
these circumstances, your 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 you 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 for federal income tax
purposes, the Class B Certificates are not properly classified as
debt. Under this approach, the Class B Certificates might be viewed as
equity interests in an entity (such as Greenwood or a joint venture
consisting of Greenwood and the Class B investors), with the Class A
Certificates treated as debt obligations of that entity. If that
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 investors 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 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
investors 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%
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<PAGE> 33
or more of the outstanding principal amount of the Class B
Certificates may be treated as a "10 percent shareholder." See
"--Foreign Investors."
Based on Greenwood's tax counsel's advice as to the likely
treatment of the Investor Certificates for federal income tax
purposes, Greenwood and the Trust will not attempt to cause the
arrangement created by the Pooling and Servicing Agreement and the
Series Supplement to comply with the federal or state income tax
reporting requirements applicable to partnerships or corporations. If
this arrangement were later held to constitute a partnership or
corporation, it is not clear how the arrangement would comply with
applicable reporting requirements.
You should consult your own tax advisors as to the risk that
the Investor Certificates will not be treated as debt of Greenwood,
and the possible tax consequences of potential alternative treatments.
12. CERTAIN STATE TAX CONSEQUENCES
Delete the text under the heading "Certain State Tax Consequences" on
pages 73-74 and substitute the following:
STATE TAX CONSEQUENCES
This summary of the state tax consequences to investors in Investor
Certificates is based on the opinion of Greenwood's tax counsel. The summary is
based upon currently applicable tax laws of certain states. Greenwood has not
sought and will not seek a ruling from the taxing authorities of those states on
the anticipated state tax consequences discussed in this summary. We cannot
assure you that the taxing authorities of any state will agree with the
conclusions in this summary. Subsequent legislative, judicial or administrative
changes--which may or may not be applied retroactively--could affect the tax
consequences to investors. Except as discussed below, this discussion of state
tax consequences assumes that the Investor Certificates will be treated as debt
of Greenwood for federal tax purposes.
Your state tax consequences will depend upon the provisions of the
state tax laws to which you are 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 100% of the
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
investors in all of the state taxing jurisdictions in which they are already
subject to tax.
Greenwood's headquarters are located in Delaware and that is where
Greenwood originates and owns the Accounts and services the Receivables pursuant
to the Pooling and Servicing Agreement. Greenwood's tax counsel has advised
Greenwood that, in their opinion, although the matter is not free from doubt,
the Investor Certificates will be treated as debt of Greenwood for purposes of
the Delaware income tax. Accordingly, although the matter is not free from
doubt, if the Investor Certificates are treated as debt of Greenwood in
Delaware,
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<PAGE> 34
investors not otherwise subject to taxation in Delaware will not become subject
to the Delaware income tax solely because they own Investor Certificates.
Generally, you are required to pay, in states in which you are already
subject to state tax, additional state tax as a result of interest earned on
your investment in Investor Certificates. Moreover, a state could claim that the
Trust has undertaken activities within that state and therefore the Trust is
subject to taxation by that state. Were any state to make and sustain that
claim, the treatment of the Investor Certificates would be determined under that
state's tax laws, and it is possible that the Investor Certificates would not be
treated as debt of Greenwood for purposes of that state taxation.
If your Investor Certificates were treated as interests in a
partnership or a corporation, your state tax consequences could be materially
different, especially in states that may be considered to have a business
connection with the Receivables. See "Federal Income Tax Consequences --
Possible Characterization of the Investor Certificates."
THE ABOVE DESCRIPTION OF THE POTENTIAL STATE TAX CONSEQUENCES IS
INCOMPLETE. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS ABOUT THESE MATTERS.
13. ERISA CONSIDERATIONS
Delete the text under the subheading "ERISA Considerations" on pages
74-75 and substitute the following:
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code impose certain requirements on those
employee benefit plans, including Individual Retirement Accounts and
Individual Retirement Annuities (collectively "IRAs"), to which they
apply ("Plans") and on fiduciaries of those Plans. To comply with
ERISA's general fiduciary standards, before investing in Investor
Certificates, a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is
appropriate for the Plan in view of the risks associated with the
investment, the Plan's overall investment policy and the composition
and diversification of the Plan's portfolio. ERISA and the Code
prohibit certain transactions involving the assets of a Plan and
persons who have certain specified relationships to the Plan ("parties
in interest" within the meaning of ERISA or "disqualified persons"
within the meaning of the Code). Prohibited transactions may generate
excise taxes and other liabilities. Prohibited transactions involving
IRAs may result in the disqualification of the IRAs. Thus, a Plan
fiduciary considering an investment in Investor Certificates should
also consider whether such an investment might constitute or give rise
to a prohibited transaction under ERISA or the Code.
Certain transactions involved in the operation of the Trust
might be deemed to constitute prohibited transactions under ERISA and
the Code, if assets of the Trust were deemed to be assets of an
investing Plan. ERISA and the Code do not define "plan assets." The
U.S. Department of Labor (the "DOL") has published a regulation (the
"Regulation"), which defines when a Plan's investment in an entity
will be deemed to include an interest in the underlying assets of the
entity (such as the Trust) for purposes of ERISA and the Code. Unless
the Plan's investment is an "equity interest," the underlying
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assets of the entity will not be considered assets of the Plan under
the Regulation. Under the Regulation, a beneficial ownership in a
trust is deemed to be an equity interest. The DOL has ruled in an
opinion letter, which is not binding upon Greenwood, the Trustee or
any Underwriter, that similar "pass through" Investor Certificates in
a trust constituted equity interests.
Assuming that the Investor Certificates are equity
interests, the Regulation contains an exception that provides that if
a Plan acquires a "publicly-offered security," then the assets of the
issuer of the security will not be deemed to be Plan assets. A
publicly-offered security is a security that is:
o freely transferable,
o part of a class of securities that is owned by 100
or more investors independent of the issuer and of
one another by the conclusion of the offering, and
o either is
o part of a class of securities registered
under section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or
o sold to the Plan as part of an offering
of securities to the public pursuant to
an effective registration statement
under the Securities Act of 1933, if the
class of securities of which the
security is a part is registered under
the Securities Exchange Act of 1934
within 120 days (or such later time as
may be allowed by the Securities and
Exchange Commission) after the end of
the fiscal year of the issuer during
which the offering of the securities to
the public occurred.
If the Class A Certificates are deemed to be debt and not
equity for ERISA purposes, the purchase of the Class A Certificates by
a Plan with respect to which Greenwood 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 applies. 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 Investor
Certificates for the Plan:
o DOL Prohibited Transaction Exemption ("PTE") 84-14
(Class Exemption for Plan Asset Transactions
determined by Independent Qualified Professional
Asset Managers);
o PTE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment
Funds);
o PTE 90-1 (Class Exemption for Certain Transactions
Involving Insurance Company Pooled Separate
Accounts); and
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<PAGE> 36
o 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 purchaser of Class A Certificates might
violate the prohibited transaction rules if the purchase were made
during the offering with assets of a Plan and Greenwood, the Trustee,
any Underwriter or any of their affiliates was a fiduciary with
respect to that Plan. Under ERISA and the Code, a person is a
"fiduciary" with respect to a Plan to the extent:
o he [or she] exercises any discretionary authority
or discretionary control respecting management of
that Plan or exercises any authority or control
respecting management or disposition of its
assets,
o he [or she] renders investment advice for a fee or
other compensation, direct or indirect, with
respect to any moneys or other property of that
Plan, or has any authority or responsibility to do
so, or
o he [or she] has any discretionary authority or
discretionary responsibility in the administration
of that Plan.
Accordingly, the fiduciaries of any Plan should not purchase
Class A Certificates during the offering with assets of any Plan if
Greenwood, the Trustee, any Underwriter 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 Class A Certificates should consult their own benefits
counsel 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 provides an exemption from this portion of the
holding in John Hancock. Section 401(c) of ERISA was added by the
Small Business Job Protection Act of 1996 and requires the Secretary
of Labor to issue regulations 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 the
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. On December 22,
1997, the DOL issued proposed regulations under Section 401(c) of
ERISA. 29 CFR 2550.401c-1. These regulations apply only to policies
that are issued by
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<PAGE> 37
an insurer on or before December 31, 1998, to or for the benefit of an
employee benefit plan that is supported by the assets of the insurer's
general account. These regulations will take effect at the end of the
18-month period following the date on which they become final. Section
401(c) of ERISA 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 that is 18
months after the date the regulations become final.
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 effect on their purchase of
Class A Certificates.
14. AVAILABLE INFORMATION
Delete the text under the heading "Available Information" on page 76
of the prospectus and substitute the following:
The Trust is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended. Greenwood, on behalf
of the Trust, will file reports and other information with the
Securities and Exchange Commission (the "Commission"). You may review
the reports 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, you may also obtain
these reports and other documents from the web site that the
Commission maintains at http://www.sec.gov. You may also obtain copies
of these materials from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
15. GLOSSARY OF TERMS
a. Delete the definition of "Certificateholder" or "Holder" on page 82
of the prospectus and substitute the following:
"CERTIFICATEHOLDER" OR "HOLDER" will mean an investor
certificateholder, a Person in whose name a Certificate is registered
in the register maintained pursuant to the Pooling and Servicing
Agreement for the registration, transfer and exchange of Certificates,
or a Person in whose name ownership of the uncertificated Seller
Certificate is recorded in the books and records of the Trustee.
b. Delete the definition of "Charged-Off Amount" on page 82 of the
prospectus and substitute the following:
"CHARGED-OFF AMOUNT" will mean, for any Distribution Date,
the total amount of Receivables in Accounts that become Charged-Off
Accounts in the previous calendar month minus:
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<PAGE> 38
o the cumulative, uncollected amount previously billed by the
Servicers to Accounts that became Charged-Off Accounts
during the previous calendar month 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" for
Accounts that are not Charged-Off Accounts, and
o the full amount of any Receivables in these Charged-Off
Accounts that Greenwood repurchased.
c. Add the definition "Class Investment Income" on page 83 of the
prospectus:
"CLASS INVESTMENT INCOME" will not apply to this Series. For
other series issued by the Trust, Class Investment Income will mean,
with respect to any Class, income from the investment of funds on
deposit in the Series Principal Funding Account for the benefit of
that Class, up to the amount of interest on those funds the Trust is
required to pay for that Class.
d. Add the definition of "Early Accumulation Period" on page 86 of
prospectus:
"EARLY ACCUMULATION PERIOD" will not apply to this Series.
For any other series issued by the Trust that has an Early
Accumulation Period, the term will have the meaning set forth in the
applicable Series Supplement.
e. Delete the definition of "Economic Early Amortization Event" on
page 86 of the prospectus and substitute the following:
"ECONOMIC EARLY AMORTIZATION EVENT" will mean the event
specified in subparagraph (i) in "Description of the Investor
Certificates -- Amortization Events."
f. Delete the definition of "Finance Charge Receivables" on
page 87 of the prospectus and substitute the following:
"FINANCE CHARGE RECEIVABLES" will mean, for any Account for any
calendar month,
o the net amount billed by the Servicer during that month as
periodic finance charges on the Account and cash advance
fees, annual membership fees, fees for transactions that
exceed the credit limit on the Account, late payment charges
billed during that month to the Account and any other
charges that the Servicer may designate as "Finance Charge
Receivables" from time to time (provided that the Servicer
will not designate amounts owing for the payment of goods
and services or cash advances as "Finance Charge
Receivables"), minus
o if the Account becomes a Charged-Off Account during that
month, the cumulative, uncollected amount previously billed
by the Servicer to the Account as periodic finance charges,
cash advance fees, annual membership fees, if any, 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.
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<PAGE> 39
f. Delete the definition of "Receivable" on page 92 of the prospectus
and substitute the following:
"RECEIVABLE" will mean any amounts owing by the Obligor
under an Account from time to time, including, without limitation,
amounts owing for the payment of goods and services, cash advances,
finance charges and other charges, if any. A Receivable will be deemed
to have been created at the end of the day on the Date of Processing
of the Receivable. A Receivable will not include any amount owing
under a Charged-Off Account or an Account the Receivables in which
have been repurchased pursuant to the Pooling and Servicing Agreement.
Reference to a "receivable" will include any amount owing by an
Obligor under a Charged-Off Account or an Account in which the
Receivables have been repurchased pursuant to the Pooling and
Servicing Agreement.
g. Delete the definition of "Recovered Amounts" on page 92 of the
prospectus and substitute the following:
"RECOVERED AMOUNTS" will mean all amounts received with
respect to receivables that have previously been charged-off as
uncollectible, including without limitation all proceeds from sales of
those receivables by the Trust to third parties pursuant to the
Pooling and Servicing Agreement.
g. Delete the definition of "Seller Certificate" on page 94 of the
prospectus and substitute the following:
"SELLER CERTIFICATE" will mean (i) if a Seller elects to
evidence its fractional undivided interest in the Trust in
certificated form pursuant to the Pooling and Servicing Agreement, the
certificate executed by the Seller and authenticated by the Trustee,
or (ii) an uncertificated fractional undivided interest in the Trust,
as evidenced by a recording in the books and records of the Trustee,
in each case representing a residual interest in the assets of the
Trust not represented by the Class A Certificates or the Class B
Certificates.
h. Delete the definition of "Series Available Principal Amount" on
page 94 of the prospectus and replace with the following:
"SERIES AVAILABLE PRINCIPAL AMOUNT" will mean, for any
Distribution Date, if a Group Principal Allocation Event has occurred,
for each series that is a member of Group One that is in its
Controlled Liquidation Period or Accumulation Period, as applicable,
an amount calculated as follows: for each such series, seriatim,
beginning with the series with the largest Series Investor Interest
for that Distribution Date (and if more than one series has the same
Series Investor Interest on that Distribution Date, beginning with
whichever of those series has the longest time remaining in its
Controlled Liquidation Period or Accumulation Period, as applicable
(assuming that no Amortization Event or Early Accumulation Event
occurs with respect to that series)), an amount equal to:
o the Group Available Principal Amount; less
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<PAGE> 40
o the Series Required Principal Amount less the
amount of such series' Controlled Liquidation
Amount or Controlled Accumulation Amount, as
applicable, that was funded on that Distribution
Date (including any portion of that amount that
was funded by amounts withdrawn from the
applicable Group Principal Collections
Reallocation Account pursuant to the Series
Supplement for that series).
For purposes of calculating the Series Available Principal
Amount for each other such series, the Group Available Principal
Amount will be reduced by the Series Available Principal Amount for
the prior series for which the Series Available Principal Amount was
calculated.
16. GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES (ANNEX II)
a. Delete the last sentence under the subheading "Exemption for
non-U.S. Holders (Form W-8)" on page 101 and substitute the following:
If the beneficial owner becomes a United States citizen or resident
during the period to which the Form W-8 relates, or certain other
changes in circumstances occur, the beneficial owner must inform the
appropriate party of the change within 30 days of the change in
circumstances. Form W-8 is generally effective for three calendar
years, but the beneficial owner may be required to file a new Form
W-8 each time he or she receives a payment from the Trust.
b. Delete the first and second paragraphs under the subheading "U.S.
Federal Income Tax Reporting Procedure" on page 101 and substitute the
following:
The owner of a Global Security or, in the case of a Form
1001 or a Form 4224 filer, his or her agent, files by submitting the
appropriate form to the person through whom the owner or agent holds
its Investor Certificate (which is the clearing agency, in the case of
persons holding directly on the books of the clearing agency).
Treasury Regulations, which will apply to payments made
after 1999 (with certain transition rules), will simplify certain
current certification procedures. Under these regulations, a new Form
W-8 will:
o replace Forms 1001 and 4224, and
o be the only form a non-U.S. Holder needs in order
to obtain a withholding exemption or reduction.
Further, pursuant to these new regulations, special rules permit a
beneficial owner to shift primary responsibility for withholding to
certain financial intermediaries acting on their behalf. Although a
beneficial owner will still be required to submit a Form W-8 to its
financial intermediary, the intermediary generally will not be
required to forward the Form W-8 to the withholding agent. We urge
both U.S. Holders and non-U.S. Holders to consult their own tax
advisors with respect to these new regulations.
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The term "U.S. Holder" means:
o a citizen or resident of the United States,
o a corporation or partnership organized in the United States
or under the laws of the United States or any state,
o an estate the income of which is subject to United States
federal income taxation regardless of the source of that
income, or
o a trust, if a court within the United States is able to
exercise primary supervision over the trust's
administration, 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 the source of that income).
