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FILED PURSUANT TO RULE 424(B)(3)
OF THE SECURITIES ACT OF 1933
REGISTRATION NO. 33-71504
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 1993-3
6.20% Class A Credit Card Pass-Through Certificates
6.45% 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 9. 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
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prevailing market prices at the time of sale or otherwise. None of DWR, MS &
Co., MSIL or 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 9-11 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
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will have a material adverse effect on Greenwood's financial condition
or on the 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 11 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 11-12 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
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1986; the Discover Card competes with general purpose credit cards
issued by other 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 12-13 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
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charge collections and the effective yield on the receivables could
also decrease. This 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 13 regarding "Basis
Risk."
4. THE DISCOVER CARD BUSINESS
Delete the text under the heading "The Discover Card Business" on pages
16-19 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
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to "receivables" and "the accounts" in which they arise), and (2) the
pool of Receivables 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
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the Cashback Bonus amount for merchandise. No such amounts will be paid
from the 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
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service food establishments, governments, restaurants, medical
providers and warehouse 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
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circumstances, may result in a decrease in the level of the receivables
in the Discover 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
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levels for the Trust will consistently approximate these levels for the
Discover Card 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 19:
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
19-20 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
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investors, collections may be reduced during any period in which
Greenwood offers 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
11
<PAGE> 12
predicted, as well as the extent to which balance transfer offers and
special promotion offers are made and accepted, and the extent to which
Greenwood changes the terms of the Cardmember Agreement. Reductions in
the yield could, if 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 21-22 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>
PERCENTAGE OF TOTAL RECEIVABLES
STATE 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 22 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 21-25 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)
----------- ------------ ------------ ------------ ----------- -----------
<S> <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 pages 25-26 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 pay Class A principal in full on November 15, 2003 (or the
next business day) and a minimum payment rate of 6.46% in November 2003
to pay Class B principal in full on December 15, 2003 (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 November 15, 2003 (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 3.41% 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 26 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
under "Reallocation of Series Investor Percentage of Collections Among Series in
Group One" on pages 35-36 and substitute the following:
Series 1993-3 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 1993-3 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 (38) under "Distribution of Collections and
Application of Collections and Certain Other Amounts" on page 44 and substitute
the following:
(38) 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 Certificate Principal with respect to such series during
such series' Accumulation Period,
19
<PAGE> 20
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 55 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 65 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 66 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 66:
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
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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 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 66:
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 68 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
69.
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
a. Delete the text under the heading "Certain Federal Income Tax
Consequences" on pages 69-75 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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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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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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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
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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 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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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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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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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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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 75-76 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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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
76-77 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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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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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 78 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 84
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 84 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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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
the full amount of any Receivables in these Charged-Off Accounts
that Greenwood repurchased.
c. Add the definition of "Early Accumulation Period" on page 87 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.
d. Delete the definition of "Economic Early Amortization Event" on page
89 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."
e. Delete the definition of "Finance Charge Receivables" on page 90 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.
f. Delete the definition of "Receivable" on page 95 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
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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 95 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.
f. Delete the definition of "Seller Certificate" on page 97 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
pages 97-98 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
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).
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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 104 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 104 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.
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,
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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).
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